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FIRST DIVISION

[G.R. No. 148622. September 12, 2002]

REPUBLIC OF THE PHILIPPINES, represented by HON. HEHERSON T. ALVAREZ,


in his capacity as Secretary of the DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES (DENR), CLARENCE L. BAGUILAT, in his capacity
as the Regional Executive Director of DENR-Region XI and ENGR.
BIENVENIDO L. LIPAYON, in his capacity as the Regional Director of the
DENR-ENVIRONMENTAL MANAGEMENT BUREAU (DENR-EMB), Region
XI, petitioners, vs. THE CITY OF DAVAO, represented by BENJAMIN C. DE
GUZMAN, City Mayor, respondent.

DECISION
YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari assailing the decision dated May 28,
[1] [2]

2001 of the Regional Trial Court of Davao City, Branch 33, which granted the writ of
mandamus and injunction in favor of respondent, the City of Davao, and against petitioner,
the Republic, represented by the Department of Environment and Natural Resources
(DENR). The trial court also directed petitioner to issue a Certificate of Non-Coverage in
favor of respondent.

The antecedent facts of the case are as follows:

On August 11, 2000, respondent filed an application for a Certificate of Non-Coverage


(CNC) for its proposed project, the Davao City Artica Sports Dome, with the Environmental
Management Bureau (EMB), Region XI. Attached to the application were the required
documents for its issuance, namely, a) detailed location map of the project site; b) brief
project description; and c) a certification from the City Planning and Development Office
that the project is not located in an environmentally critical area (ECA). The EMB Region
XI denied the application after finding that the proposed project was within an
environmentally critical area and ruled that, pursuant to Section 2, Presidential Decree No.
1586, otherwise known as the Environmental Impact Statement System, in relation to
Section 4 of Presidential Decree No, 1151, also known as the Philippine Environment
Policy, the City of Davao must undergo the environmental impact assessment (EIA)
process to secure an Environmental Compliance Certificate (ECC), before it can proceed
with the construction of its project.

Believing that it was entitled to a Certificate of Non-Coverage, respondent filed a


petition for mandamus and injunction with the Regional Trial Court of Davao, docketed as
Civil Case No. 28,133-2000. It alleged that its proposed project was neither an
environmentally critical project nor within an environmentally critical area; thus it was
outside the scope of the EIS system. Hence, it was the ministerial duty of the DENR,
through the EMB-Region XI, to issue a CNC in favor of respondent upon submission of
the required documents.

The Regional Trial Court rendered judgment in favor of respondent, the dispositive
portion of which reads as follows:

WHEREFORE, finding the petition to be meritorious, judgment granting the writ of mandamus and
injunction is hereby rendered in favor of the petitioner City of Davao and against respondents
Department of Environment and Natural Resources and the other respondents by:

1) directing the respondents to issue in favor of the petitioner City of Davao a Certificate of Non-
Coverage, pursuant to Presidential Decree No. 1586 and related laws, in connection with the
construction by the City of Davao of the Artica Sports Dome;

2) making the preliminary injunction issued on December 12, 2000 permanent.

Costs de oficio.

SO ORDERED. [3]

The trial court ratiocinated that there is nothing in PD 1586, in relation to PD 1151 and
Letter of Instruction No. 1179 (prescribing guidelines for compliance with the EIA system),
which requires local government units (LGUs) to comply with the EIS law. Only agencies
and instrumentalities of the national government, including government owned or
controlled corporations, as well as private corporations, firms and entities are mandated to
go through the EIA process for their proposed projects which have significant effect on the
quality of the environment. A local government unit, not being an agency or instrumentality
of the National Government, is deemed excluded under the principle of expressio unius
est exclusio alterius.

The trial court also declared, based on the certifications of the DENR-Community
Environment and Natural Resources Office (CENRO)-West, and the data gathered from
the Philippine Institute of Volcanology and Seismology (PHIVOLCS), that the site for the
Artica Sports Dome was not within an environmentally critical area. Neither was the
project an environmentally critical one. It therefore becomes mandatory for the DENR,
through the EMB Region XI, to approve respondents application for CNC after it has
satisfied all the requirements for its issuance. Accordingly, petitioner can be compelled by
a writ of mandamus to issue the CNC, if it refuses to do so.

Petitioner filed a motion for reconsideration, however, the same was denied. Hence,
the instant petition for review.
With the supervening change of administration, respondent, in lieu of a comment, filed
a manifestation expressing its agreement with petitioner that, indeed, it needs to secure
an ECC for its proposed project. It thus rendered the instant petition moot and
academic. However, for the guidance of the implementors of the EIS law and pursuant to
our symbolic function to educate the bench and bar, we are inclined to address the issue
[4]

raised in this petition.

Section 15 of Republic Act 7160, otherwise known as the Local Government Code,
[5]

defines a local government unit as a body politic and corporate endowed with powers to
be exercised by it in conformity with law. As such, it performs dual functions, governmental
and proprietary. Governmental functions are those that concern the health, safety and the
advancement of the public good or welfare as affecting the public generally. Proprietary [6]

functions are those that seek to obtain special corporate benefits or earn pecuniary profit
and intended for private advantage and benefit. When exercising governmental powers
[7]

and performing governmental duties, an LGU is an agency of the national government.


When engaged in corporate activities, it acts as an agent of the community in the
[8]

administration of local affairs. [9]

Found in Section 16 of the Local Government Code is the duty of the LGUs to promote
the peoples right to a balanced ecology. Pursuant to this, an LGU, like the City of Davao,
[10]

can not claim exemption from the coverage of PD 1586. As a body politic endowed with
governmental functions, an LGU has the duty to ensure the quality of the environment,
which is the very same objective of PD 1586.

Further, it is a rule of statutory construction that every part of a statute must be


interpreted with reference to the context, i.e., that every part must be considered with
other parts, and kept subservient to the general intent of the enactment. The trial court, in
[11]

declaring local government units as exempt from the coverage of the EIS law, failed to
relate Section 2 of PD 1586 to the following provisions of the same law:
[12]

WHEREAS, the pursuit of a comprehensive and integrated environmental protection program


necessitates the establishment and institutionalization of a system whereby the exigencies of socio-
economic undertakings can be reconciled with the requirements of environmental quality; x x x.

Section 1. Policy. It is hereby declared the policy of the State to attain and maintain a rational and
orderly balance between socio-economic growth and environmental protection.

xxxxxxxxx

Section 4. Presidential Proclamation of Environmentally Critical Areas and Projects. The President
of the Philippines may, on his own initiative or upon recommendation of the National
Environmental Protection Council, by proclamation declare certain projects, undertakings or areas
in the country as environmentally critical. No person, partnership or corporation shall undertake or
operate any such declared environmentally critical project or area without first securing an
Environmental Compliance Certificate issued by the President or his duly authorized
representative. For the proper management of said critical project or area, the President may by his
proclamation reorganize such government offices, agencies, institutions, corporations or
instrumentalities including the realignment of government personnel, and their specific functions
and responsibilities.

Section 4 of PD 1586 clearly states that no person, partnership or corporation shall


undertake or operate any such declared environmentally critical project or area without
first securing an Environmental Compliance Certificate issued by the President or his duly
authorized representative. The Civil Code defines a person as either natural or juridical.
[13]

The state and its political subdivisions, i.e., the local government units are juridical
[14]

persons. Undoubtedly therefore, local government units are not excluded from the
[15]

coverage of PD 1586.

Lastly, very clear in Section 1 of PD 1586 that said law intends to implement the policy
of the state to achieve a balance between socio-economic development and
environmental protection, which are the twin goals of sustainable development. The
above-quoted first paragraph of the Whereas clause stresses that this can only be
possible if we adopt a comprehensive
and integrated environmental protection program where all the sectors of the community
are involved, i.e., the government and the private sectors. The local government units, as
part of the machinery of the government, cannot therefore be deemed as outside the
scope of the EIS system. [16]

The foregoing arguments, however, presuppose that a project, for which an


Environmental Compliance Certificate is necessary, is environmentally critical or within an
environmentally critical area. In the case at bar, respondent has sufficiently shown that the
Artica Sports Dome will not have a significant negative environmental impact because it is
not an environmentally critical project and it is not located in an environmentally critical
area. In support of this contention, respondent submitted the following:

1. Certification from the City Planning and Development Office that the project is not located in an
environmentally critical area;

2. Certification from the Community Environment and Natural Resources Office (CENRO-West)
that the project area is within the 18-30% slope, is outside the scope of the NIPAS (R.A. 7586), and
not within a declared watershed area; and

3. Certification from PHILVOCS that the project site is thirty-seven (37) kilometers southeast of
the southernmost extension of the Davao River Fault and forty-five (45) kilometers west of the
Eastern Mindanao Fault; and is outside the required minimum buffer zone of five (5) meters from a
fault zone.
The trial court, after a consideration of the evidence, found that the Artica Sports Dome
is not within an environmentally critical area. Neither is it an environmentally critical
project. It is axiomatic that factual findings of the trial court, when fully supported by the
evidence on record, are binding upon this Court and will not be disturbed on appeal. This [17]

Court is not a trier of facts.[18]

There are exceptional instances when this Court may disregard factual findings of the
trial court, namely: a) when the conclusion is a finding grounded entirely on speculations,
surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or
impossible; c) where there is a grave abuse of discretion; d) when the judgment is based
on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
are contrary to the admissions of both appellant and appellee; g) when the findings of the
Court of Appeals are contrary to those of the trial court; h) when the findings of fact are
conclusions without citation of specific evidence on which they are based; i) when the
finding of fact of the Court of Appeals is premised on the supposed absence of evidence
but is contradicted by the evidence on record; and j) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion. None of these exceptions, however,
[19]

obtain in this case.

The Environmental Impact Statement System, which ensures environmental protection


and regulates certain government activities affecting the environment, was established by
Presidential Decree No. 1586. Section 2 thereof states:

There is hereby established an Environmental Impact Statement System founded and based on the
environmental impact statement required under Section 4 of Presidential Decree No. 1151, of all
agencies and instrumentalities of the national government, including government-owned or
controlled corporations, as well as private corporations, firms and entities, for every proposed
project and undertaking which significantly affect the quality of the environment.

Section 4 of PD 1151, on the other hand, provides:

Environmental Impact Statements. Pursuant to the above enunciated policies and goals, all agencies
and instrumentalities of the national government, including government-owned or controlled
corporations, as well as private corporations, firms and entities shall prepare, file and include in
every action, project or undertaking which significantly affects the quality of the environment a
detailed statement on

(a) the environmental impact of the proposed action, project or undertaking

(b) any adverse environmental effect which cannot be avoided should the proposal be implemented

(c) alternative to the proposed action


(d) a determination that the short-term uses of the resources of the environment are consistent with
the maintenance and enhancement of the long-term productivity of the same; and

(e) whenever a proposal involves the use of depletable or nonrenewable resources, a finding must
be made that such use and commitment are warranted.

Before an environmental impact statement is issued by a lead agency, all agencies having
jurisdiction over, or special expertise on, the subject matter involved shall comment on the draft
environmental impact statement made by the lead agency within thirty (30) days from receipt of the
same.

Under Article II, Section 1, of the Rules and Regulations Implementing PD 1586, the
declaration of certain projects or areas as environmentally critical, and which shall fall
within the scope of the Environmental Impact Statement System, shall be by Presidential
Proclamation, in accordance with Section 4 of PD 1586 quoted above.

Pursuant thereto, Proclamation No. 2146 was issued on December 14, 1981,
proclaiming the following areas and types of projects as environmentally critical and within
the scope of the Environmental Impact Statement System established under PD 1586:

A. Environmentally Critical Projects

I. Heavy Industries

a. Non-ferrous metal industries

b. Iron and steel mills

c. Petroleum and petro-chemical industries including oil and gas

d. Smelting plants

II. Resource Extractive Industries

a. Major mining and quarrying projects

b. Forestry projects

1. Logging

2. Major wood processing projects

3. Introduction of fauna (exotic-animals) in public/private forests

4. Forest occupancy
5. Extraction of mangrove products

6. Grazing

c. Fishery Projects

1. Dikes for/and fishpond development projects

III. Infrastructure Projects

a. Major dams

b. Major power plants (fossil-fueled, nuclear fueled, hydroelectric or


geothermal)

c. Major reclamation projects

d. Major roads and bridges

B. Environmentally Critical Areas

1. All areas declared by law as national parks, watershed reserves, wildlife


preserves and sanctuaries;

2. Areas set aside as aesthetic potential tourist spots;

3. Areas which constitute the habitat for any endangered or threatened species of
indigenous Philippine Wildlife (flora and fauna);

4. Areas of unique historic, archaeological, or scientific interests;

5. Areas which are traditionally occupied by cultural communities or tribes;

6. Areas frequently visited and/or hard-hit by natural calamities (geologic hazards,


floods, typhoons, volcanic activity, etc.);

7. Areas with critical slopes;

8. Areas classified as prime agricultural lands;

9. Recharged areas of aquifers;

10. Water bodies characterized by one or any combination of the following conditions;

a. tapped for domestic purposes


b. within the controlled and/or protected areas declared by appropriate
authorities

c. which support wildlife and fishery activities

11. Mangrove areas characterized by one or any combination of the following conditions:

a. with primary pristine and dense young growth;

b. adjoining mouth of major river systems;

c. near or adjacent to traditional productive fry or fishing grounds;

d. which act as natural buffers against shore erosion, strong winds and storm
floods;

e. on which people are dependent for their livelihood.

12. Coral reefs, characterized by one or any combinations of the following conditions:

a. with 50% and above live coralline cover;

b. spawning and nursery grounds for fish;

c. which act as natural breakwater of coastlines.

In this connection, Section 5 of PD 1586 expressly states:

Environmentally Non-Critical Projects. All other projects, undertakings and areas not declared by
the President as environmentally critical shall be considered as non-critical and shall not be
required to submit an environmental impact statement. The National Environmental Protection
Council, thru the Ministry of Human Settlements may however require non-critical projects and
undertakings to provide additional environmental safeguards as it may deem necessary.

The Artica Sports Dome in Langub does not come close to any of the projects or areas
enumerated above. Neither is it analogous to any of them. It is clear, therefore, that the
said project is not classified as environmentally critical, or within an environmentally critical
area. Consequently, the DENR has no choice but to issue the Certificate of Non-
Coverage. It becomes its ministerial duty, the performance of which can be compelled by
writ of mandamus, such as that issued by the trial court in the case at bar.

WHEREFORE, in view of the foregoing, the instant petition is DENIED. The decision
of the Regional Trial Court of Davao City, Branch 33, in Civil Case No. 28,133-2000,
granting the writ of mandamus and directing the Department of Environment and Natural
Resources to issue in favor of the City of Davao a Certificate of Non-Coverage, pursuant
to Presidential Decree No. 1586 and related laws, in connection with the construction of
the Artica Sports Dome, is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, and Carpio, JJ., concur.

Republic of the Philippines


Supreme Court
Manila
EN BANC

BORACAY FOUNDATION, INC., G.R. No. 196870


Petitioner,

Present:

CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
- versus - BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
THE PROVINCE OF AKLAN, MENDOZA,*
REPRESENTED BY SERENO,
GOVERNOR CARLITO S. REYES, and
MARQUEZ, THE PHILIPPINE PERLAS-BERNABE, JJ.
RECLAMATION AUTHORITY,
AND THE DENR-EMB Promulgated:
(REGION VI),
Respondents. June 26, 2012
x--------------------------------------------------x

DECISION
LEONARDO-DE CASTRO, J.:

In resolving this controversy, the Court took into consideration that all the parties involved
share common goals in pursuit of certain primordial State policies and principles that are
enshrined in the Constitution and pertinent laws, such as the protection of the environment, the
empowerment of the local government units, the promotion of tourism, and the encouragement
of the participation of the private sector. The Court seeks to reconcile the respective roles,
duties and responsibilities of the petitioner and respondents in achieving these shared goals
within the context of our Constitution, laws and regulations.

Nature of the Case

This is an original petition for the issuance of an Environmental Protection Order in the nature
of a continuing mandamus under A.M. No. 09-6-8-SC, otherwise known as the Rules of
Procedure for Environmental Cases, promulgated on April 29, 2010.

The Parties

Petitioner Boracay Foundation, Inc. (petitioner) is a duly registered, non-stock domestic


corporation. Its primary purpose is to foster a united, concerted and environment-conscious
development of Boracay Island, thereby preserving and maintaining its culture, natural beauty
and ecological balance, marking the island as the crown jewel of Philippine tourism, a prime
tourist destination in Asia and the whole world.[1] It counts among its members at least sixty
(60) owners and representatives of resorts, hotels, restaurants, and similar institutions; at least
five community organizations; and several environmentally-conscious residents and advocates.
[2]

Respondent Province of Aklan (respondent Province) is a political subdivision of the


government created pursuant to Republic Act No. 1414, represented by Honorable Carlito S.
Marquez, the Provincial Governor (Governor Marquez).

Respondent Philippine Reclamation Authority (respondent PRA), formerly called the Public
Estates Authority (PEA), is a government entity created by Presidential Decree No. 1084,
[3]
which states that one of the purposes for which respondent PRA was created was to reclaim
land, including foreshore and submerged areas. PEA eventually became the lead agency
primarily responsible for all reclamation projects in the country under Executive Order No. 525,
series of 1979. In June 2006, the President of the Philippines issued Executive Order No. 543,
delegating the power to approve reclamation projects to PRA through its governing Board,
subject to compliance with existing laws and rules and further subject to the condition that
reclamation contracts to be executed with any person or entity (must) go through public
bidding.[4]

Respondent Department of Environment and Natural Resources Environmental Management


Bureau (DENR-EMB), Regional Office VI (respondent DENR-EMB RVI), is the government
agency in the Western Visayas Region authorized to issue environmental compliance certificates
regarding projects that require the environments protection and management in the region.[5]

Summary of Antecedent Facts

Boracay Island (Boracay), a tropical paradise located in the Western Visayas region of the Philippines
and one of the countrys most popular tourist destinations, was declared a tourist zone and marine reserve in
1973 under Presidential Proclamation No. 1801.[6] The island comprises the barangays of Manoc-manoc,
Balabag, and Yapak, all within the municipality of Malay, in the province of Aklan.[7]

Petitioner describes Boracay as follows:

Boracay is well-known for its distinctive powdery white-sand beaches which are the
product of the unique ecosystem dynamics of the area. The island itself is known to come from
the uplifted remnants of an ancient reef platform. Its beaches, the sandy land strip between the
water and the area currently occupied by numerous establishments, is the primary draw for
domestic and international tourists for its color, texture and other unique characteristics.
Needless to state, it is the premier domestic and international tourist destination in the
Philippines.[8]

More than a decade ago, respondent Province built the Caticlan Jetty Port and Passenger Terminal at
Barangay Caticlan to be the main gateway to Boracay. It also built the corresponding Cagban Jetty Port and
Passenger Terminal to be the receiving end for tourists in Boracay. Respondent Province operates both ports to
provide structural facilities suited for locals, tourists and guests and to provide safety and security measures.[9]

In 2005, Boracay 2010 Summit was held and participated in by representatives from national
government agencies, local government units (LGUs), and the private sector. Petitioner was one of the
organizers and participants thereto. The Summit aimed to re-establish a common vision of all stakeholders to
ensure the conservation, restoration, and preservation of Boracay Island and to develop an action plan that
[would allow] all sectors to work in concert among and with each other for the long term benefit and
sustainability of the island and the community.[10] The Summit yielded a Terminal Report [11]stating that the
participants had shared their dream of having world-class land, water and air infrastructure, as well as given
their observations that government support was lacking, infrastructure was poor, and, more importantly, the
influx of tourists to Boracay was increasing. The Report showed that there was a need to expand the port
facilities at Caticlan due to congestion in the holding area of the existing port, caused by inadequate facilities,
thus tourists suffered long queues while waiting for the boat ride going to the island.[12]

Respondent Province claimed that tourist arrivals to Boracay reached approximately 649,559 in 2009
and 779,666 in 2010, and this was expected to reach a record of 1 million tourist arrivals in the years to
come. Thus, respondent Province conceptualized the expansion of the port facilities at Barangay Caticlan.[13]

The Sangguniang Barangay of Caticlan, Malay Municipality, issued Resolution No. 13,
s. 2008[14] on April 25, 2008 stating that it had learned that respondent Province had filed an
application with the DENR for a foreshore lease of areas along the shorelines of Barangay
Caticlan, and manifesting its strong opposition to said application, as the proposed foreshore
lease practically covered almost all the coastlines of said barangay, thereby technically
diminishing its territorial jurisdiction, once granted, and depriving its constituents of their
statutory right of preference in the development and utilization of the natural resources within
its jurisdiction. The resolution further stated that respondent Province did not conduct any
consultations with the Sangguniang Barangay of Caticlan regarding the proposed foreshore
lease, which failure the Sanggunian considered as an act of bad faith on the part of respondent
Province.[15]

On November 20, 2008, the Sangguniang Panlalawigan of respondent Province


approved Resolution No. 2008-369,[16] formally authorizing Governor Marquez to enter into
negotiations towards the possibility of effecting self-liquidating and income-producing
development and livelihood projects to be financed through bonds, debentures, securities,
collaterals, notes or other obligations as provided under Section 299 of the Local Government
Code, with the following priority projects: (a) renovation/rehabilitation of the Caticlan/Cagban
Passenger Terminal Buildings and Jetty Ports; and (b) reclamation of a portion of Caticlan
foreshore for commercial purposes.[17] This step was taken as respondent Provinces existing
jetty port and passenger terminal was funded through bond flotation, which was successfully
redeemed and paid ahead of the target date. This was allegedly cited as one of the LGUs Best
Practices wherein respondent Province was given the appropriate commendation.[18]

Respondent Province included the proposed expansion of the port facilities at


Barangay Caticlan in its 2009 Annual Investment Plan,[19] envisioned as its project site the area
adjacent to the existing jetty port, and identified additional areas along the coastline of
Barangay Caticlan as the site for future project expansion.[20]

Governor Marquez sent a letter to respondent PRA on March 12, 2009 [21] expressing the interest
of respondent Province to reclaim about 2.64 hectares of land along the foreshores of Barangay
Caticlan, Municipality of Malay, Province of Aklan.
Sometime in April 2009, respondent Province entered into an agreement with the Financial
Advisor/Consultant that won in the bidding process held a month before, to conduct the
necessary feasibility study of the proposed project for the Renovation/Rehabilitation of the
Caticlan Passenger Terminal Building and Jetty Port, Enhancement and Recovery of Old
Caticlan Coastline, and Reclamation of a Portion of Foreshore for Commercial Purposes (the
Marina Project), in Malay, Aklan.[22]

Subsequently, on May 7, 2009, the Sangguniang Panlalawigan of respondent Province


issued Resolution No. 2009110,[23] which authorized Governor Marquez to file an
application to reclaim the 2.64 hectares of foreshore area in Caticlan, Malay, Aklan with
respondent PRA.

Sometime in July 2009, the Financial Advisor/Consultant came up with a feasibility study
which focused on the land reclamation of 2.64 hectares by way of beach enhancement and
recovery of the old Caticlan coastline for the rehabilitation and expansion of the existing jetty
port, and for its future plans the construction of commercial building and wellness center. The
financial component of the said study was Two Hundred Sixty Million Pesos
(P260,000,000.00). Its suggested financing scheme was bond flotation.[24]

Meanwhile, the Sangguniang Bayan of the Municipality of Malay expressed its strong
opposition to the intended foreshore lease application, through Resolution No. 044,[25] approved
on July 22, 2009, manifesting therein that respondent Provinces foreshore lease application was
for business enterprise purposes for its benefit, at the expense of the local government of Malay,
which by statutory provisions was the rightful entity to develop, utilize and reap benefits from
the natural resources found within its jurisdiction.[26]

In August 2009, a Preliminary Geohazard Assessment [27] for the enhancement/expansion


of the existing Caticlan Jetty Port and Passenger Terminal through beach zone restoration and
Protective Marina Developments in Caticlan, Malay, Aklan was completed.

Thereafter, Governor Marquez submitted an Environmental Performance Report and


Monitoring Program (EPRMP)[28] to DENR-EMB RVI, which he had attached to his
letter[29] dated September 19, 2009, as an initial step for securing an Environmental Compliance
Certificate (ECC). The letter reads in part:

With the project expected to start its construction implementation next month, the
province hereby assures your good office that it will give preferential attention to and shall
comply with whatever comments that you may have on this EPRMP.[30] (Emphasis added.)
Respondent Province was then authorized to issue Caticlan Super Marina Bonds for the purpose of
funding the renovation of the Caticlan Jetty Port and Passenger Terminal Building, and the reclamation of a
portion of the foreshore lease area for commercial purposes in Malay, Aklan through Provincial Ordinance No.
2009-013, approved on September 10, 2009. The said ordinance authorized Governor Marquez to negotiate,
sign and execute agreements in relation to the issuance of the Caticlan Super Marina Bonds in the amount not
exceeding P260,000,000.00.[31]

Subsequently, the Sangguniang Panlalawigan of the Province of Aklan issued Provincial Ordinance
No. 2009-015[32] on October 1, 2009, amending Provincial Ordinance No. 2009-013, authorizing the bond
flotation of the Province of Aklan through Governor Marquez to fund the Marina Project and appropriate the
entire proceeds of said bonds for the project, and further authorizing Governor Marquez to negotiate, sign and
execute contracts or agreements pertinent to the transaction.[33]

Within the same month of October 2009, respondent Province deliberated on the possible
expansion from its original proposed reclamation area of 2.64 hectares to forty (40) hectares in
order to maximize the utilization of its resources and as a response to the findings of the
Preliminary Geohazard Assessment study which showed that the recession and retreat of the
shoreline caused by coastal erosion and scouring should be the first major concern in the project
site and nearby coastal area. The study likewise indicated the vulnerability of the coastal zone
within the proposed project site and the nearby coastal area due to the effects of sea level rise
and climate change which will greatly affect the social, economic, and environmental situation
of Caticlan and nearby Malay coastal communities.[34]

In his letter dated October 22, 2009 addressed to respondent PRA, Governor Marquez
wrote:

With our substantial compliance with the requirements under Administrative Order No.
2007-2 relative to our request to PRA for approval of the reclamation of the [proposed Beach
Zone Restoration and Protection Marine Development in Barangays Caticlan and Manoc-Manoc]
and as a result of our discussion during the [meeting with the respondent PRA on October 12,
2009], may we respectfully submit a revised Reclamation Project Description embodying
certain revisions/changes in the size and location of the areas to be reclaimed. x x x.

On another note, we are pleased to inform your Office that the bond flotation we have
secured with the Local Government Unit Guarantee Corporation (LGUGC) has been finally
approved last October 14, 2009. This will pave the way for the implementation of said project.
Briefly, the Province has been recognized by the Bureau of Local Government Finance (BLGF)
for its capability to meet its loan obligations. x x x.

With the continued increase of tourists coming to Boracay through Caticlan, the Province
is venturing into such development project with the end in view of protection and/or restoring
certain segments of the shoreline in Barangays Caticlan (Caticlan side) and Manoc-manoc
(Boracay side) which, as reported by experts, has been experiencing tremendous coastal erosion.
For the project to be self-liquidating, however, we will be developing the reclaimed land
for commercial and tourism-related facilities and for other complementary uses.[35] (Emphasis
ours.)

Then, on November 19, 2009, the Sangguniang Panlalawigan enacted Resolution No. 2009-
[36]
299 authorizing Governor Marquez to enter into a Memorandum of Agreement (MOA) with respondent PRA
in the implementation of the Beach Zone Restoration and Protection Marina Development Project, which shall
reclaim a total of 40 hectares in the areas adjacent to the jetty ports at Barangay Caticlan and Barangay
Manoc-manoc. The Sangguniang Panlalawigan approved the terms and conditions of the necessary agreements
for the implementation of the bond flotation of respondent Province to fund the renovation/rehabilitation of the
existing jetty port by way of enhancement and recovery of the Old Caticlan shoreline through reclamation of an
area of 2.64 hectares in the amount of P260,000,000.00 on December 1, 2009.[37]

Respondent Province gave an initial presentation of the project with consultation to the Sangguniang
Bayan of Malay[38] on December 9, 2009.

Respondent PRA approved the reclamation project on April 20, 2010 in its Resolution No.
4094 and authorized its General Manager/Chief Executive Officer (CEO) to enter into a MOA with respondent
Province for the implementation of the reclamation project.[39]

On April 27, 2010, DENR-EMB RVI issued to respondent Province ECC-R6-1003-096-7100 (the
questioned ECC) for Phase 1 of the Reclamation Project to the extent of 2.64 hectares to be done along the
Caticlan side beside the existing jetty port.[40]

On May 17, 2010, respondent Province entered into a MOA[41] with respondent PRA. Under Article III,
the Project was described therein as follows:

The proposed Aklan Beach Zone Restoration and Protection Marina Development
Project involves the reclamation and development of approximately forty (40) hectares of
foreshore and offshore areas of the Municipality of Malay x x x.

The land use development of the reclamation project shall be for commercial,
recreational and institutional and other applicable uses.[42] (Emphases supplied.)
It was at this point that respondent Province deemed it necessary to conduct a series of what it
calls information-education campaigns, which provided the venue for interaction and dialogue with the
public, particularly the Barangay and Municipal officials of the Municipality of Malay, the residents of
Barangay Caticlan and Boracay, the stakeholders, and the non-governmental organizations (NGOs). The details
of the campaign are summarized as follows[43]:

a. June 17, 2010 at Casa Pilar Beach Resort, Boracay Island, Malay, Aklan;[44]

b. July 28, 2010 at Caticlan Jetty Port and Passenger Terminal;[45]


c. July 31, 2010 at Barangay Caticlan Plaza;[46]

d. September 15, 2010 at the Office of the Provincial Governor with Municipal Mayor of
Malay Mayor John P. Yap;[47]

e. October 12, 2010 at the Office of the Provincial Governor with the Provincial Development
Council Executive Committee;[48] and

f. October 29, 2010 at the Office of the Provincial Governor with Officials of LGU-Malay and
Petitioner.[49]

Petitioner claims that during the public consultation meeting belatedly called by respondent Province on
June 17, 2010, respondent Province presented the Reclamation Project and only then detailed the actions that it
had already undertaken, particularly: the issuance of the Caticlan Super Marina Bonds; the execution of the
MOA with respondent PRA; the alleged conduct of an Environmental Impact Assessment (EIA) study for the
reclamation project; and the expansion of the project to forty (40) hectares from 2.64 hectares.[50]

In Resolution No. 046, Series of 2010, adopted on June 23, 2010, the Malay Municipality reiterated its
strong opposition to respondent Provinces project and denied its request for a favorableendorsement of the
Marina Project.[51]

The Malay Municipality subsequently issued Resolution No. 016, Series of 2010, adopted on August 3,
2010, to request respondent PRA not to grant reclamation permit and notice to proceed to the Marina Project of
the [respondent] Provincial Government of Aklan located at Caticlan, Malay, Aklan.[52]

In a letter[53] dated October 12, 2010, petitioner informed respondent PRA of its opposition to the
reclamation project, primarily for the reason that, based on the opinion of Dr. Porfirio M. Alio, an expert from
the University of the Philippines Marine Science Institute (UPMSI), which he rendered based on the documents
submitted by respondent Province to obtain the ECC, a full EIA study is required to assess the reclamation
projects likelihood of rendering critical and lasting effect on Boracay considering the proximity in distance,
geographical location, current and wind direction, and many other environmental considerations in the area.
Petitioner noted that said documents had failed to deal with coastal erosion concerns in Boracay. It also noted
that respondent Province failed to comply with certain mandatory provisions of the Local Government Code,
particularly, those requiring the project proponent to conduct consultations with stakeholders.

Petitioner likewise transmitted its Resolution No. 001, Series of 2010, registering its opposition to the
reclamation project to respondent Province, respondent PRA, respondent DENR-EMB, the National Economic
Development Authority Region VI, the Malay Municipality, and other concerned entities.[54]
Petitioner alleges that despite the Malay Municipalitys denial of respondent Provinces request for
a favorable endorsement, as well as the strong opposition manifested both by Barangay Caticlan and petitioner
as an NGO, respondent Province still continued with the implementation of the Reclamation Project.[55]

On July 26, 2010, the Sangguniang Panlalawigan of respondent Province set aside Resolution No. 046,
s. 2010, of the Municipality of Malay and manifested its support for the implementation of the aforesaid
project through its Resolution No. 2010-022.[56]

On July 27, 2010, the MOA was confirmed by respondent PRA Board of Directors under its Resolution
No. 4130. Respondent PRA wrote to respondent Province on October 19, 2010, informing the latter to proceed
with the reclamation and development of phase 1 of site 1 of its proposed project. Respondent PRA
attached to said letter its Evaluation Report dated October 18, 2010.[57]

Petitioner likewise received a copy of respondent PRAs letter dated October 19, 2010, which authorized
respondent Province to proceed with phase 1 of the reclamation project, subject to compliance with the
requirements of its Evaluation Report. The reclamation project was described as:

[A] seafront development involving reclamation of an aggregate area of more or


less, forty (40) hectares in two (2) separate sites both in Malay Municipality, Aklan
Province. Site 1 is in Brgy. Caticlan with a total area of 36.82 hectares and Site 2 in Brgy.
Manoc-Manoc, Boracay Island with a total area of 3.18 hectares. Sites 1 and 2 are on the
opposite sides of Tabon Strait, about 1,200 meters apart. x x x. [58] (Emphases added.)

The Sangguniang Panlalawigan of Aklan, through Resolution No. 2010-034,[59] addressed the
apprehensions of petitioner embodied in its Resolution No. 001, s. 2010, and supported the implementation of
the project. Said resolution stated that the apprehensions of petitioner with regard to the economic, social and
political negative impacts of the projects were mere perceptions and generalities and were not anchored on
definite scientific, social and political studies.

In the meantime, a study was commissioned by the Philippine Chamber of Commerce and Industry-
Boracay (PCCI-Boracay), funded by the Department of Tourism (DOT) with the assistance of, among others,
petitioner. The study was conducted in November 2010 by several marine biologists/experts from the Marine
Environmental Resources Foundation (MERF) of the UPMSI. The study was intended to determine the
potential impact of a reclamation project in the hydrodynamics of the strait and on the coastal erosion patterns
in the southern coast of Boracay Island and along the coast of Caticlan.[60]
After noting the objections of the respective LGUs of Caticlan and Malay, as well as the apprehensions
of petitioner, respondent Province issued a notice to the contractor on December 1, 2010 to commence with the
construction of the project.[61]

On April 4, 2011, the Sangguniang Panlalawigan of Aklan, through its Committee on Cooperatives,
Food, Agriculture, and Environmental Protection and the Committee on Tourism, Trade, Industry and
Commerce, conducted a joint committee hearing wherein the study undertaken by the MERF-UPMSI was
discussed.[62] In attendance were Mr. Ariel Abriam, President of PCCI-Boracay, representatives from the
Provincial Government, and Dr. Cesar Villanoy, a professor from the UPMSI. Dr. Villanoy said that the subject
project, consisting of 2.64 hectares, would only have insignificanteffect on the hydrodynamics of the strait
traversing the coastline of Barangay Caticlan and Boracay, hence, there was a distant possibility that it would
affect the Boracay coastline, which includes the famous white-sand beach of the island.[63]

Thus, on April 6, 2011, the Sangguniang Panlalawigan of Aklan enacted Resolution No. 2011-
[64]
065 noting the report on the survey of the channel between Caticlan and Boracay conducted by the UPMSI in
relation to the effects of the ongoing reclamation to Boracay beaches, and stating that Dr. Villanoy had admitted
that nowhere in their study was it pointed out that there would be an adverse effect on the white-sand beach of
Boracay.
During the First Quarter Regular Meeting of the Regional Development Council, Region VI (RDC-VI)
on April 16, 2011, it approved and supported the subject project (covering 2.64 hectares) through RDC-VI
Resolution No. VI-26, series of 2011.[65]

Subsequently, Mr. Abriam sent a letter to Governor Marquez dated April 25, 2011 stating that the study
conducted by the UPMSI confirms that the water flow across the Caticlan-Boracay channel is primarily tide-
driven, therefore, the marine scientists believe that the 2.64-hectare project of respondent Province would not
significantly affect the flow in the channel and would unlikely impact the Boracay beaches. Based on this,
PCCI-Boracay stated that it was not opposing the 2.64-hectare Caticlan reclamation project on environmental
grounds.[66]

On June 1, 2011, petitioner filed the instant Petition for Environmental Protection Order/Issuance of the
Writ of Continuing Mandamus. On June 7, 2011, this Court issued a Temporary Environmental Protection
Order (TEPO) and ordered the respondents to file their respective comments to the petition.[67]

After receiving a copy of the TEPO on June 9, 2011, respondent Province immediately issued an order
to the Provincial Engineering Office and the concerned contractor to cease and desist from conducting any
construction activities until further orders from this Court.

The petition is premised on the following grounds:


I.

THE RESPONDENT PROVINCE, PROPONENT OF THE RECLAMATION PROJECT,


FAILED TO COMPLY WITH RELEVANT RULES AND REGULATIONS IN THE
ACQUISITION OF AN ECC.

A. THE RECLAMATION PROJECT IS CO-LOCATED WITHIN ENVIRONMENTALLY


CRITICAL AREAS REQUIRING THE PERFORMANCE OF A FULL, OR
PROGRAMMATIC, ENVIRONMENTAL IMPACT ASSESSMENT.

B. RESPONDENT PROVINCE FAILED TO OBTAIN THE FAVORABLE


ENDORSEMENT OF THE LGU CONCERNED.

C. RESPONDENT PROVINCE FAILED TO CONDUCT THE REQUIRED


CONSULTATION PROCEDURES AS REQUIRED BY THE LOCAL GOVERNMENT
CODE.

D. RESPONDENT PROVINCE FAILED TO PERFORM A FULL ENVIRONMENTAL


IMPACT ASSESSMENT AS REQUIRED BY LAW AND RELEVANT
REGULATIONS.

II.

THE RECLAMATION OF LAND BORDERING THE STRAIT BETWEEN CATICLAN AND


BORACAY SHALL ADVERSELY AFFECT THE FRAIL ECOLOGICAL BALANCE OF THE
AREA.[68]

Petitioner objects to respondent Provinces classification of the reclamation project as single instead of
co-located, as non-environmentally critical, and as a mere rehabilitation of the existing jetty port. Petitioner
points out that the reclamation project is on two sites (which are situated on the opposite sides of Tabon Strait,
about 1,200 meters apart):

36.82 hectares Site 1, in Bgy. Caticlan


3.18 hectares Site 2, in Manoc-manoc, Boracay Island[69]

Phase 1, which was started in December 2010 without the necessary permits, [70] is located on the
Caticlan side of a narrow strait separating mainland Aklan from Boracay. In the implementation of the project,
respondent Province obtained only an ECC to conduct Phase 1, instead of an ECC on the entire 40
hectares. Thus, petitioner argues that respondent Province abused and exploited the Revised Procedural
Manual for DENR Administrative Order No. 30, Series of 2003 (DENR DAO 2003-30) [71] relating to the
acquisition of an ECC by:
1. Declaring the reclamation project under Group II Projects-Non-ECP (environmentally
critical project) in ECA (environmentally critical area) based on the type and size of the
area, and

2. Failing to declare the reclamation project as a co-located project application which would
have required the Province to submit a Programmatic Environmental Impact Statement
(PEIS)[72] or Programmatic Environmental [Performance] Report Management Plan
(PE[P]RMP).[73] (Emphases ours.)

Petitioner further alleges that the Revised Procedural Manual (on which the classification above is
based, which merely requires an Environmental Impact Statement [EIS] for Group II projects) is patently ultra
vires, and respondent DENR-EMB RVI committed grave abuse of discretion because the laws on EIS, namely,
Presidential Decree Nos. 1151 and 1586, as well as Presidential Proclamation No. 2146, clearly indicate that
projects in environmentally critical areas are to be immediately considered environmentally critical. Petitioner
complains that respondent Province applied for an ECC only forPhase 1; hence, unlawfully
evading the requirement that co-located projects [74] within Environmentally Critical Areas (ECAs) must
submit a PEIS and/or a PEPRMP.

Petitioner argues that respondent Province fraudulently classified and misrepresented the project as a
Non-ECP in an ECA, and as a single project instead of a co-located one. The impact assessment allegedly
performed gives a patently erroneous and wrongly-premised appraisal of the possible environmental impact of
the reclamation project. Petitioner contends that respondent Provinces choice of classification was designed to
avoid a comprehensive impact assessment of the reclamation project.

Petitioner further contends that respondent DENR-EMB RVI willfully and deliberately disregarded its
duty to ensure that the environment is protected from harmful developmental projects because it allegedly
performed only a cursory and superficial review of the documents submitted by the respondent Province for an
ECC, failing to note that all the information and data used by respondent Province in its application for the ECC
were all dated and not current, as data was gathered in the late 1990s for the ECC issued in 1999 for the first
jetty port. Thus, petitioner alleges that respondent DENR-EMB RVI ignored the environmental impact to
Boracay, which involves changes in the structure of the coastline that could contribute to the changes in the
characteristics of the sand in the beaches of both Caticlan and Boracay.

Petitioner insists that reclamation of land at the Caticlan side will unavoidably adversely affect the
Boracay side and notes that the declared objective of the reclamation project is for the exploitation of Boracays
tourist trade, since the project is intended to enhance support services thereto. But, petitioner argues, the
primary reason for Boracays popularity is its white-sand beaches which will be negatively affected by the
project.
Petitioner alleges that respondent PRA had required respondent Province to obtain the favorable
endorsement of the LGUs of Barangay Caticlan and Malay Municipality pursuant to the consultation procedures
as required by the Local Government Code. [75] Petitioner asserts that the reclamation project is in violation not
only of laws on EIS but also of the Local Government Code as respondent Province failed to enter into proper
consultations with the concerned LGUs. In fact, the Liga ng mga Barangay-Malay Chapter also expressed
strong opposition against the project.[76]

Petitioner cites Sections 26 and 27 of the Local Government Code, which require consultations if the
project or program may cause pollution, climactic change, depletion of non-renewable resources, etc. According
to petitioner, respondent Province ignored the LGUs opposition expressed as early as 2008. Not only that,
respondent Province belatedly called for public consultation meetings on June 17 and July 28, 2010, after an
ECC had already been issued and the MOA between respondents PRA and Province had already been
executed. As the petitioner saw it, these were not consultations but mere project presentations.

Petitioner claims that respondent Province, aided and abetted by respondents PRA and DENR-EMB,
ignored the spirit and letter of the Revised Procedural Manual, intended to implement the various regulations
governing the Environmental Impact Assessments (EIAs) to ensure that developmental projects are in line with
sustainable development of natural resources. The project was conceptualized without considering alternatives.

Further, as to its allegation that respondent Province failed to perform a full EIA, petitioner argues
that while it is true that as of now, only the Caticlan side has been issued an ECC, the entire project involves the
Boracay side, which should have been considered a co-located project. Petitioner claims that any project
involving Boracay requires a full EIA since it is an ECA. Phase 1 of the project will affect Boracay and
Caticlan as they are separated only by a narrow strait; thus, it should be considered an ECP. Therefore, the ECC
and permit issued must be invalidated and cancelled.

Petitioner contends that a study shows that the flow of the water through a narrower channel due to the
reclamation project will likely divert sand transport off the southwest part of Boracay, whereas the characteristic
coast of the Caticlan side of the strait indicate stronger sediment transport. [77] The white-sand beaches of
Boracay and its surrounding marine environment depend upon the natural flow of the adjacent waters.

Regarding its claim that the reclamation of land bordering the strait between Caticlan and Boracay shall
adversely affect the frail ecological balance of the area, petitioner submits that while the study conducted by the
MERF-UPMSI only considers the impact of the reclamation project on the land, it is undeniable that it will also
adversely affect the already frail ecological balance of the area. The effect of the project would have been
properly assessed if the proper EIA had been performed prior to any implementation of the project.

According to petitioner, respondent Provinces intended purposes do not prevail over its duty and
obligation to protect the environment. Petitioner believes that rehabilitation of the Jetty Port may be done
through other means.
In its Comment[78] dated June 21, 2011, respondent Province claimed that application for reclamation
of 40 hectares is advantageous to the Provincial Government considering that its filing fee would only cost
Php20,000.00 plus Value Added Tax (VAT) which is also the minimum fee as prescribed under Section 4.2 of
Administrative Order No. 2007-2.[79]

Respondent Province considers the instant petition to be premature; thus, it must necessarily fail for lack
of cause of action due to the failure of petitioner to fully exhaust the available administrative remedies even
before seeking judicial relief. According to respondent Province, the petition primarily assailed the decision of
respondent DENR-EMB RVI in granting the ECC for the subject project consisting of 2.64 hectares and sought
the cancellation of the ECC for alleged failure of respondent Province to submit proper documentation as
required for its issuance. Hence, the grounds relied upon by petitioner can be addressed within the confines of
administrative processes provided by law.

Respondent Province believes that under Section 5.4.3 of DENR Administrative Order No. 2003-30
(DAO 2003-30),[80] the issuance of an ECC[81] is an official decision of DENR-EMB RVI on the application of a
project proponent.[82] It cites Section 6 of DENR DAO 2003-30, which provides for a remedy available to the
party aggrieved by the final decision on the proponents ECC applications.
Respondent Province argues that the instant petition is anchored on a wrong premise that results to
petitioners unfounded fears and baseless apprehensions. It is respondent Provinces contention that its 2.64-
hectare reclamation project is considered as a stand alone project, separate and independent from the approved
area of 40 hectares. Thus, petitioner should have observed the difference between the future development plan
of respondent Province from its actual project being undertaken.[83]

Respondent Province clearly does not dispute the fact that it revised its original application to
respondent PRA from 2.64 hectares to 40 hectares. However, it claims that such revision is part of its future
plan, and implementation thereof is still subject to availability of funds, independent scientific environmental
study, separate application of ECC and notice to proceed to be issued by respondent PRA.[84]

Respondent Province goes on to claim that [p]etitioners version of the Caticlan jetty port expansion
project is a bigger project which is still at the conceptualization stage. Although this project was described in
the Notice to Proceed issued by respondent PRA to have two phases, 36.82 hectares in Caticlan and 3.18
hectares in Boracay [Island,] it is totally different from the [ongoing] Caticlan jetty port expansion project.[85]

Respondent Province says that the Accomplishment Report[86] of its Engineering Office would attest that
the actual project consists of 2.64 hectares only, as originally planned and conceptualized, which was even
reduced to 2.2 hectares due to some construction and design modifications.

Thus, respondent Province alleges that from its standpoint, its capability to reclaim is limited to 2.64
hectares only, based on respondent PRAs Evaluation Report[87] dated October 18, 2010, which was in turn the
basis of the issuance of the Notice to Proceed dated October 19, 2010, because the projects financial component
is P260,000,000.00 only. Said Evaluation Report indicates that the implementation of the other phases of the
project including site 2, which consists of the other portions of the 40-hectare area that includes a portion in
Boracay, is still within the 10-year period and will depend largely on the availability of funds of respondent
Province.[88]

So, even if respondent PRA approved an area that would total up to 40 hectares, it was divided into
phases in order to determine the period of its implementation. Each phase was separate and independent
because the source of funds was also separate. The required documents and requirements were also specific for
each phase. The entire approved area of 40 hectares could be implemented within a period of 10 years but this
would depend solely on the availability of funds.[89]

As far as respondent Province understands it, additional reclamations not covered by the ECC, which
only approved 2.64 hectares, should undergo another EIA. If respondent Province intends to commence the
construction on the other component of the 40 hectares, then it agrees that it is mandated to secure a new ECC.
[90]

Respondent Province admits that it dreamt of a 40-hectare project, even if it had originally planned and
was at present only financially equipped and legally compliant to undertake 2.64 hectares of the project, and
only as an expansion of its old jetty port.[91]

Respondent Province claims that it has complied with all the necessary requirements for securing an
ECC. On the issue that the reclamation project is within an ECA requiring the performance of a full or
programmatic EIA, respondent Province reiterates that the idea of expanding the area to 40 hectares is only a
future plan. It only secured an ECC for 2.64 hectares, based on the limits of its funding and authority. From the
beginning, its intention was to rehabilitate and expand the existing jetty port terminal to accommodate an
increasing projected traffic. The subject project is specifically classified under DENR DAO 2003-30 on its
Project Grouping Matrix for Determination of EIA Report Type considered as Minor Reclamation Projects
falling under Group II Non ECP in an ECA. Whether 2.64 or 40 hectares in area, the subject project falls within
this classification.

Consequently, respondent Province claims that petitioner erred in considering the ongoing reclamation
project at Caticlan, Malay, Aklan, as co-located within an ECA.

Respondent Province, likewise argues that the 2.64-hectare project is not a component of the approved
40-hectare area as it is originally planned for the expansion site of the existing Caticlan jetty port. At present, it
has no definite conceptual construction plan of the said portion in Boracay and it has no financial allocation to
initiate any project on the said Boracay portion.
Furthermore, respondent Province contends that the present project is located in Caticlan while the
alleged component that falls within an ECA is in Boracay. Considering its geographical location, the two sites
cannot be considered as a contiguous area for the reason that it is separated by a body of water a strait that
traverses between the mainland Panay wherein Caticlan is located and Boracay. Hence, it is erroneous to
consider the two sites as a co-located project within an ECA. Being a stand alone project and an expansion of
the existing jetty port, respondent DENR-EMB RVI had required respondent Province to perform an EPRMP to
secure an ECC as sanctioned by Item No. 8(b), page 7 of DENR DAO 2003-30.

Respondent Province contends that even if, granting for the sake of argument, it had erroneously
categorized its project as Non-ECP in an ECA, this was not a final determination. Respondent DENR-EMB
RVI, which was the administrator of the EIS system, had the final decision on this matter. Under DENR DAO
2003-30, an application for ECC, even for a Category B2 project where an EPRMP is conducted, shall be
subjected to a review process. Respondent DENR-EMB RVI had the authority to deny said application. Its
Regional Director could either issue an ECC for the project or deny the application. He may also require a more
comprehensive EIA study. The Regional Director issued the ECC based on the EPRMP submitted by respondent
Province and after the same went through the EIA review process.

Thus, respondent Province concludes that petitioners allegation of this being a co-located project is
premature if not baseless as the bigger reclamation project is still on the conceptualization stage. Both
respondents PRA and Province are yet to complete studies and feasibility studies to embark on another project.

Respondent Province claims that an ocular survey of the reclamation project revealed that it had worked
within the limits of the ECC.[92]

With regard to petitioners allegation that respondent Province failed to get the favorable endorsement of
the concerned LGUs in violation of the Local Government Code, respondent Province contends that
consultation vis--vis the favorable endorsement from the concerned LGUs as contemplated under the Local
Government Code are merely tools to seek advice and not a power clothed upon the LGUs to unilaterally
approve or disapprove any government projects. Furthermore, such endorsement is not necessary for projects
falling under Category B2 unless required by the DENR-EMB RVI, under Section 5.3 of DENR DAO 2003-30.

Moreover, DENR Memorandum Circular No. 08-2007 no longer requires the issuance of permits and
certifications as a pre-requisite for the issuance of an ECC. Respondent Province claims to have conducted
consultative activities with LGUs in connection with Sections 26 and 27 of the Local Government Code. The
vehement and staunch objections of both the Sangguniang Barangay of Caticlan and the Sangguniang Bayan of
Malay, according to respondent Province, were not rooted on its perceived impact upon the people and the
community in terms of environmental or ecological balance, but due to an alleged conflict with their principal
position to develop, utilize and reap benefits from the natural resources found within its jurisdiction.
[93]
Respondent Province argues that these concerns are not within the purview of the Local Government
Code. Furthermore, the Preliminary Geohazard Assessment Report and EPRMP as well as Sangguniang
Panlalawigan Resolution Nos. 2010-022 and 2010-034 should address any environmental issue they may raise.

Respondent Province posits that the spirit and intent of Sections 26 and 27 of the Local Government
Code is to create an avenue for parties, the proponent and the LGU concerned, to come up with a tool in
harmonizing its views and concerns about the project. The duty to consult does not automatically require
adherence to the opinions during the consultation process. It is allegedly not within the provisions to give the
full authority to the LGU concerned to unilaterally approve or disapprove the project in the guise of requiring
the proponent of securing its favorable endorsement. In this case, petitioner is calling a halt to the project
without providing an alternative resolution to harmonize its position and that of respondent Province.

Respondent Province claims that the EPRMP[94] would reveal that:

[T]he area fronting the project site is practically composed of sand. Dead coral communities may
be found along the vicinity. Thus, fish life at the project site is quite scarce due to the absence of
marine support systems like the sea grass beds and coral reefs.

x x x [T]here is no coral cover at the existing Caticlan jetty port. [From] the deepest point of jetty
to the shallowest point, there was no more coral patch and the substrate is sandy. It is of public
knowledge that the said foreshore area is being utilized by the residents ever since as berthing or
anchorage site of their motorized banca. There will be no possibility of any coral development
therein because of its continuous utilization. Likewise, the activity of the strait that traverses
between the main land Caticlan and Boracay Island would also be a factor of the coral
development. Corals [may] only be formed within the area if there is scientific human
intervention, which is absent up to the present.

In light of the foregoing premise, it casts serious doubt on petitioners allegations


pertaining to the environmental effects of Respondent-LGUs 2.64 hectares reclamation
project. The alleged environmental impact of the subject project to the beaches of Boracay Island
remains unconfirmed. Petitioner had unsuccessfully proven that the project would cause
imminent, grave and irreparable injury to the community.[95]

Respondent Province prayed for the dissolution of the TEPO, claiming that the rules provide that the
TEPO may be dissolved if it appears after hearing that its issuance or continuance would cause irreparable
damage to the party or person enjoined, while the applicant may be fully compensated for such damages as he
may suffer and subject to the posting of a sufficient bond by the party or person enjoined. Respondent Province
contends that the TEPO would cause irreparable damage in two aspects:

a. Financial dislocation and probable bankruptcy; and


b. Grave and imminent danger to safety and health of inhabitants of immediate area, including tourists
and passengers serviced by the jetty port, brought about by the abrupt cessation of development
works.
As regards financial dislocation, the arguments of respondent Province are summarized
below:

1. This project is financed by bonds which the respondent Province had issued to its creditors
as the financing scheme in funding the present project is by way of credit financing through
bond flotation.

2. The funds are financed by a Guarantee Bank getting payment from bonds, being sold to
investors, which in turn would be paid by the income that the project would realize or incur
upon its completion.

3. While the project is under construction, respondent Province is appropriating a portion of its
Internal Revenue Allotment (IRA) budget from the 20% development fund to defray the
interest and principal amortization due to the Guarantee Bank.

4. The respondent Provinces IRA, regular income, and/or such other revenues or funds, as may
be permitted by law, are being used as security for the payment of the said loan used for the
projects construction.

5. The inability of the subject project to earn revenues as projected upon completion will compel
the Province to shoulder the full amount of the obligation, starting from year 2012.

6. Respondent province is mandated to assign its IRA, regular income and/or such other revenues
or funds as permitted by law; if project is stopped, detriment of the public welfare and its
constituents.[96]

As to the second ground for the dissolution of the TEPO, respondent Province argues:

1. Non-compliance with the guidelines of the ECC may result to environmental hazards most
especially that reclaimed land if not properly secured may be eroded into the sea.

2. The construction has accomplished 65.26 percent of the project. The embankment that was
deposited on the project has no proper concrete wave protection that might be washed out in
the event that a strong typhoon or big waves may occur affecting the strait and the properties
along the project site. It is already the rainy season and there is a big possibility of typhoon
occurrence.

3. If said incident occurs, the aggregates of the embankment that had been washed out might be
transferred to the adjoining properties which could affect its natural environmental state.

4. It might result to the total alteration of the physical landscape of the area attributing to
environmental disturbance.

5. The lack of proper concrete wave protection or revetment would cause the total erosion of the
embankment that has been dumped on the accomplished area.[97]
Respondent Province claims that petitioner will not stand to suffer immediate, grave and irreparable
injury or damage from the ongoing project. The petitioners perceived fear of environmental destruction brought
about by its erroneous appreciation of available data is unfounded and does not translate into a matter of
extreme urgency. Thus, under the Rules of Procedure on Environmental Cases, the TEPO may be dissolved.

Respondent PRA filed its Comment[98] on June 22, 2011. It alleges that on June 24, 2006, Executive
Order No. 543 delegated the power to approve reclamation projects to respondent PRA through its governing
Board, subject to compliance with existing laws and rules and further subject to the condition that reclamation
contracts to be executed with any person or entity (must) go through public bidding.

Section 4 of respondent PRAs Administrative Order No. 2007-2 provides for the approval process and
procedures for various reclamation projects to be undertaken. Respondent PRA prepared an Evaluation Report
on November 5, 2009[99] regarding Aklans proposal to increase its project to 40 hectares.

Respondent PRA contends that it was only after respondent Province had complied with the
requirements under the law that respondent PRA, through its Board of Directors, approved the proposed project
under its Board Resolution No. 4094.[100] In the same Resolution, respondent PRA Board authorized the
General Manager/CEO to execute a MOA with the Aklan provincial government to implement the reclamation
project under certain conditions.

The issue for respondent PRA was whether or not it approved the respondent Provinces 2.64-hectare
reclamation project proposal in willful disregard of alleged numerous irregularities as claimed by petitioner.[101]

Respondent PRA claims that its approval of the Aklan Reclamation Project was in accordance with law
and its rules. Indeed, it issued the notice to proceed only after Aklan had complied with all the requirements
imposed by existing laws and regulations. It further contends that the 40 hectares involved in this project
remains a plan insofar as respondent PRA is concerned. What has been approved for reclamation by
respondent PRA thus far is only the 2.64-hectare reclamation project. Respondent PRA reiterates that it
approved this reclamation project after extensively reviewing the legal, technical, financial, environmental, and
operational aspects of the proposed reclamation.[102]

One of the conditions that respondent PRA Board imposed before approving the Aklan project was that
no reclamation work could be started until respondent PRA has approved the detailed engineering
plans/methodology, design and specifications of the reclamation. Part of the required submissions to respondent
PRA includes the drainage design as approved by the Public Works Department and the ECC as issued by the
DENR, all of which the Aklan government must submit to respondent PRA before starting any reclamation
works.[103] Under Article IV(B)(3) of the MOA between respondent PRA and Aklan, the latter is required to
submit, apart from the ECC, the following requirements for respondent PRAs review and approval, as basis for
the issuance of a Notice to Proceed (NTP) for Reclamation Works:
(a) Land-form plan with technical description of the metes and bounds of the same land-
form;

(b) Final master development and land use plan for the project;

(c) Detailed engineering studies, detailed engineering design, plans and specification for
reclamation works, reclamation plans and methodology, plans for the sources of fill
materials;

(d) Drainage plan vis-a-vis the land-form approved by DPWH Regional Office to include a
cost effective and efficient drainage system as may be required based on the results of the
studies;

(e) Detailed project cost estimates and quantity take-off per items of work of the rawland
reclamation components, e.g. reclamation containment structures and soil consolidation;

(f) Organizational chart of the construction arm, manning table, equipment schedule for the
project; and,

(g) Project timetable (PERT/CPM) for the entire project construction period.[104]

In fact, respondent PRA further required respondent Province under Article IV (B)(24) of the
MOA to strictly comply with all conditions of the DENR-EMB-issued ECC and/or comply with
pertinent local and international commitments of the Republic of the Philippines to ensure
environmental protection.[105]

In its August 11, 2010 letter,[106] respondent PRA referred for respondent Provinces appropriate
action petitioners Resolution 001, series of 2010 and Resolution 46, series of 2010, of
the Sangguniang Bayan of Malay. Governor Marquez wrote respondent PRA[107] on September
16, 2010 informing it that respondent Province had already met with the different officials of
Malay, furnishing respondent PRA with the copies of the minutes of such
meetings/presentations. Governor Marquez also assured respondent PRA that it had complied
with the consultation requirements as far as Malay was concerned.

Respondent PRA claims that in evaluating respondent Provinces project and in issuing the
necessary NTP for Phase 1 of Site 1 (2.64 hectares) of the Caticlan Jetty Port expansion and
modernization, respondent PRA gave considerable weight to all pertinent issuances, especially
the ECC issued by DENR-EMB RVI.[108] Respondent PRA stresses that its earlier approval of
the 40-hectare reclamation project under its Resolution No. 4094, series of 2010, still requires a
second level of compliance requirements from the proponent. Respondent Province could not
possibly begin its reclamation works since respondent PRA had yet to issue an NTP in its favor.

Respondent PRA alleges that prior to the issuance of the NTP to respondent Province for Phase
1 of Site 1, it required the submission of the following pre-construction documents:
(a) Land-Form Plan (with technical description);

(b) Site Development Plan/Land Use Plan including,

(i) sewer and drainage systems and

(ii) waste water treatment;

(c) Engineering Studies and Engineering Design;

(d) Reclamation Methodology;

(e) Sources of Fill Materials, and,

(f) The ECC.[109]

Respondent PRA claims that it was only after the evaluation of the above submissions that it
issued to respondent Province the NTP, limited to the 2.64-hectare reclamation
project. Respondent PRA even emphasized in its evaluation report that should respondent
Province pursue the other phases of its project, it would still require the submission of an ECC
for each succeeding phases before the start of any reclamation works.[110]

Respondent PRA, being the national governments arm in regulating and coordinating all
reclamation projects in the Philippines a mandate conferred by law manifests that it is
incumbent upon it, in the exercise of its regulatory functions, to diligently evaluate, based on its
technical competencies, all reclamation projects submitted to it for approval. Once the
reclamation projects requirements set forth by law and related rules have been complied with,
respondent PRA is mandated to approve the same. Respondent PRA claims, [w]ith all the
foregoing rigorous and detailed requirements submitted and complied with by Aklan, and the
attendant careful and meticulous technical and legal evaluation by respondent PRA, it cannot be
argued that the reclamation permit it issued to Aklan is founded upon numerous irregularities;
as recklessly and baselessly imputed by BFI.[111]

In its Comment[112] dated July 1, 2011, respondent DENR-EMB RVI asserts that its act of
issuing the ECC certifies that the project had undergone the proper EIA process by assessing,
among others, the direct and indirect impact of the project on the biophysical and human
environment and ensuring that these impacts are addressed by appropriate environmental
protection and enhancement measures, pursuant to Presidential Decree No. 1586, the Revised
Procedural Manual for DENR DAO 2003-30, and the existing rules and regulations.[113]
Respondent DENR-EMB RVI stresses that the declaration in 1978 of several islands, which
includes Boracay as tourist zone and marine reserve under Proclamation No. 1801, has no
relevance to the expansion project of Caticlan Jetty Port and Passenger Terminal for the very
reason that the project is not located in the Island of Boracay, being located in Barangay
Caticlan, Malay, which is not a part of mainland Panay. It admits that the site of the subject jetty
port falls within the ECA under Proclamation No. 2146 (1981), being within the category of a
water body. This was why respondent Province had faithfully secured an ECC pursuant to the
Revised Procedural Manual for DENR DAO 2003-30 by submitting the necessary documents as
contained in the EPRMP on March 19, 2010, which were the bases in granting ECC No. R6-
1003-096-7100 (amended) on April 27, 2010 for the expansion of Caticlan Jetty Port and
Passenger Terminal, covering 2.64 hectares.[114]

Respondent DENR-EMB RVI claims that the issues raised by the LGUs of Caticlan and Malay
had been considered by the DENR-Provincial Environment and Natural Resources Office
(PENRO), Aklan in the issuance of the Order[115] dated January 26, 2010, disregarding the
claim of the Municipality of Malay, Aklan of a portion of the foreshore land in Caticlan covered
by the application of the Province of Aklan; and another Order of Rejection dated February 5,
2010 of the two foreshore applications, namely FLA No. 060412-43A and FLA No. 060412-
43B, of the Province of Aklan.[116]

Respondent DENR-EMB RVI contends that the supporting documents attached to the EPRMP
for the issuance of an ECC were merely for the expansion and modernization of the old jetty
port in Barangay Caticlan covering 2.64 hectares, and not the 40-hectare reclamation project in
Barangay Caticlan and Boracay. The previous letter of respondent Province dated October 14,
2009 addressed to DENR-EMB RVI Regional Executive Director, would show that the
reclamation project will cover approximately 2.6 hectares. [117] This application for ECC was not
officially accepted due to lack of requirements or documents.

Although petitioner insists that the project involves 40 hectares in two sites, respondent
DENR-EMB RVI looked at the documents submitted by respondent Province and saw that the
subject area covered by the ECC application and subsequently granted with ECC-R6-1003-096-
7100 consists only of 2.64 hectares; hence, respondent DENR-EMB RVI could not comment on
the excess area.[118]

Respondent DENR-EMB RVI admits that as regards the classification of the 2.64-hectare
reclamation project under Non ECP in ECA, this does not fall within the definition of a co-located project
because the subject project is merely an expansion of the old Caticlan Jetty Port, which had a previously
issued ECC (ECC No. 0699-1012-171 on October 12, 1999). Thus, only an EPRMP, not a PEIS or PEPRMP,
is required.[119]
Respondent Province submitted to respondent DENR-EMB RVI the following documents contained in
the EPRMP:

a. The Observations on the Floor Bottom and its Marine Resources at the Proposed Jetty Ports
at Caticlan and Manok-manok, Boracay, Aklan, conducted in 1999 by the Bureau of Fisheries
Aquatic Resources (BFAR) Central Office, particularly in Caticlan site, and

b. The Study conducted by Dr. Ricarte S. Javelosa, Ph. D, Mines and Geosciences Bureau
(MGB), Central Office and Engr. Roger Esto, Provincial Planning and Development Office
(PPDO), Aklan in 2009 entitled Preliminary Geo-hazard Assessment for the Enhancement of
the Existing Caticlan Jetty Port Terminal through Beach Zone Restoration and Protective
Marina Development in Malay, Aklan.

Respondent DENR-EMB RVI claims that the above two scientific studies were enough for it to arrive at
a best professional judgment to issue an amended ECC for the Aklan Marina Project covering 2.64 hectares.
[120]
Furthermore, to confirm that the 2.64-hectare reclamation has no significant negative impact with the
surrounding environment particularly in Boracay, a more recent study was conducted, and respondent DENR-
EMB RVI alleges that [i]t is very important to highlight that the input data in the [MERF- UPMSI] study
utilized the [40-hectare] reclamation and [200-meter] width seaward using the tidal and wave modelling.
[121]
The study showed that the reclamation of 2.64 hectares had no effect to the hydrodynamics of the strait
between Barangay Caticlan and Boracay.

Respondent DENR-EMB RVI affirms that no permits and/or clearances from National Government
Agencies (NGAs) and LGUs are required pursuant to the DENR Memorandum Circular No. 2007-08, entitled
Simplifying the Requirements of ECC or CNC Applications; that the EPRMP was evaluated and processed
based on the Revised Procedural Manual for DENR DAO 2003-30 which resulted to the issuance of ECC-R6-
1003-096-7100; and that the ECC is not a permit per se but a planning tool for LGUs to consider in its decision
whether or not to issue a local permit.[122]

Respondent DENR-EMB RVI concludes that in filing this case, petitioner had bypassed and deprived
the DENR Secretary of the opportunity to review and/or reverse the decision of his subordinate office, EMB
RVI pursuant to the Revised Procedural Manual for DENR DAO 2003-30. There is no extreme urgency that
necessitates the granting of Mandamus or issuance of TEPO that put to balance between the life and death of the
petitioner or present grave or irreparable damage to environment.[123]

After receiving the above Comments from all the respondents, the Court set the case for oral arguments
on September 13, 2011.

Meanwhile, on September 8, 2011, respondent Province filed a Manifestation and Motion[124] praying
for the dismissal of the petition, as the province was no longer pursuing the implementation of the succeeding
phases of the project due to its inability to comply with Article IV B.2(3) of the MOA; hence, the issues and
fears expressed by petitioner had become moot. Respondent Province alleges that the petition is premised on a
serious misappreciation of the real extent of the contested reclamation project as certainly the ECC covered only
a total of 2,691 square meters located in Barangay Caticlan, Malay, Aklan; and although the MOA spoke of 40
hectares, respondent Provinces submission of documents to respondent PRA pertaining to said area was but the
first of a two-step process of approval. Respondent Province claims that its failure to comply with the
documentary requirements of respondent PRA within the period provided, or 120 working days from the
effectivity of the MOA, indicated its waiver to pursue the remainder of the project. [125] Respondent Province
further manifested:

Confirming this in a letter dated 12 August 2011,[126] Governor Marquez informed


respondent PRA that the Province of Aklan is no longer pursuing the implementation of the
succeeding phases of the project with a total area of 37.4 hectares for our inability to comply
with Article IV B.2 (3) of the MOA; hence, the existing MOA will cover only the project area of
2.64 hectares.

In his reply-letter dated August 22, 2011,[127] [respondent] PRA General Manager
informed Governor Marquez that the [respondent] PRA Board of Directors has given
[respondent] PRA the authority to confirm the position of the Province of Aklan that the
Aklan Beach Zone Restoration and Protection Marine Development Project will now be
confined to the reclamation and development of the 2.64 hectares, more or less.

It is undisputed from the start that the coverage of the Project is in fact limited to 2.64
hectares, as evidenced by the NTP issued by respondent PRA. The recent exchange of
correspondence between respondents Province of Aklan and [respondent] PRA further confirms
the intent of the parties all along. Hence, the Project subject of the petition, without doubt, covers
only 2.64 and not 40 hectares as feared. This completely changes the extent of the Project and,
consequently, moots the issues and fears expressed by the petitioner.[128] (Emphasis supplied.)

Based on the above contentions, respondent Province prays that the petition be dismissed
as no further justiciable controversy exists since the feared adverse effect to Boracay Islands
ecology had become academic all together.[129]

The Court heard the parties oral arguments on September 13, 2011 and gave the latter
twenty (20) days thereafter to file their respective memoranda.

Respondent Province filed another Manifestation and Motion,[130] which the Court
received on April 2, 2012 stating that:

1. it had submitted the required documents and studies to respondent DENR-EMB


RVI before an ECC was issued in its favor;
2. it had substantially complied with the requirements provided under PRA
Administrative Order 2007-2, which compliance caused respondent PRAs Board to
approve the reclamation project; and
3. it had conducted a series of consultative [presentations] relative to the reclamation
project before the LGU of Malay Municipality, the Barangay Officials of Caticlan,
and stakeholders of Boracay Island.

Respondent Province further manifested that the Barangay Council of Caticlan, Malay,
Aklan enacted on February 13, 2012 Resolution No. 003, series of 2012, entitled Resolution
Favorably Endorsing the 2.6 Hectares Reclamation/MARINA Project of the Aklan Provincial
Government at Caticlan Coastline[131] and that the Sangguniang Bayan of the Municipality of
Malay, Aklan enacted Resolution No. 020, series of 2012, entitled Resolution Endorsing the
2.6 Hectares Reclamation Project of the Provincial Government of Aklan Located at Barangay
Caticlan, Malay, Aklan.[132]

Respondent Province claims that its compliance with the requirements of respondents
DENR-EMB RVI and PRA that led to the approval of the reclamation project by the said
government agencies, as well as the recent enactments of the Barangay Council of Caticlan and
the Sangguniang Bayan of the Municipality of Malay favorably endorsing the said project, had
categorically addressed all the issues raised by the Petitioner in its Petition dated June 1,
2011. Respondent Province prays as follows:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable


Court that after due proceedings, the following be rendered:
1. The Temporary Environmental Protection Order (TEPO) it issued on June 7, 2011 be
lifted/dissolved.
2. The instant petition be dismissed for being moot and academic.
3. Respondent Province of Aklan prays for such other reliefs that are just and equitable
under the premises. (Emphases in the original.)

ISSUES

The Court will now resolve the following issues:

I. Whether or not the petition should be dismissed for having been rendered moot and academic

II. Whether or not the petition is premature because petitioner failed to exhaust administrative
remedies before filing this case

III. Whether or not respondent Province failed to perform a full EIA as required by laws and
regulations based on the scope and classification of the project

IV. Whether or not respondent Province complied with all the requirements under the pertinent laws
and regulations
V. Whether or not there was proper, timely, and sufficient public consultation for the project
DISCUSSION

On the issue of whether or not the Petition should be


dismissed for having been rendered moot and
academic

Respondent Province claims in its Manifestation and Motion filed on April 2, 2012 that
with the alleged favorable endorsement of the reclamation project by the Sangguniang
Barangay of Caticlan and the Sangguniang Bayan of the Municipality of Malay, all the issues
raised by petitioner had already been addressed, and this petition should be dismissed for being
moot and academic.

On the contrary, a close reading of the two LGUs respective resolutions would reveal that
they are not sufficient to render the petition moot and academic, as there are explicit conditions
imposed that must be complied with by respondent Province. In Resolution No. 003, series of
2012, of the Sangguniang Barangay of Caticlan it is stated thatany vertical structures to be
constructed shall be subject for barangay endorsement.[133] Clearly, what the barangay endorsed
was the reclamation only, and not the entire project that includes the construction of a
commercial building and wellness center, and other tourism-related facilities. Petitioners
objections, as may be recalled, pertain not only to the reclamation per se, but also to the
building to be constructed and the entire projects perceived ill effects to the surrounding
environment.

Resolution No. 020, series of 2012, of the Sangguniang Bayan of Malay[134] is even more
specific. It reads in part:

WHEREAS, noble it seems the reclamation project to the effect that it will generate
scores of benefits for the Local Government of Malay in terms of income and employment for its
constituents, but the fact cannot be denied that the project will take its toll on the environment
especially on the nearby fragile island of Boracay and the fact also remains that the project
will eventually displace the local transportation operators/cooperatives;

WHEREAS, considering the sensitivity of the project, this Honorable Body through the
Committee where this matter was referred conducted several consultations/committee hearings
with concerned departments and the private sector specifically Boracay Foundation, Inc. and
they are one in its belief that this Local Government Unit has never been against
development so long as compliance with the law and proper procedures have been observed
and that paramount consideration have been given to the environment lest we disturb the
balance of nature to the end that progress will be brought to naught;

WHEREAS, time and again, to ensure a healthy intergovernmental relations, this August
Body requires no less than transparency and faithful commitment from the Provincial
Government of Aklan in the process of going through these improvements in the Municipality
because it once fell prey to infidelities in matters of governance;

WHEREAS, as a condition for the grant of this endorsement and to address all
issues and concerns, this Honorable Council necessitates a sincere commitment from the
Provincial Government of Aklan to the end that:

1. To allocate an office space to LGU-Malay within the building in the reclaimed area;

2. To convene the Cagban and Caticlan Jetty Port Management Board before the
resumption of the reclamation project;

3. That the reclamation project shall be limited only to 2.6 hectares in Barangay Caticlan
and not beyond;

4. That the local transportation operators/cooperatives will not be displaced; and

5. The Provincial Government of Aklan conduct a simultaneous comprehensive study


on the environmental impact of the reclamation project especially during Habagat
and Amihan seasons and put in place as early as possible mitigating measures on the
effect of the project to the environment.

WHEREAS, having presented these stipulations, failure to comply herewith will leave
this August Body no choice but to revoke this endorsement, hence faithful compliance of
the commitment of the Provincial Government is highly appealed for[.] [135] (Emphases
added.)

The Sangguniang Bayan of Malay obviously imposed explicit conditions for respondent
Province to comply with on pain of revocation of its endorsement of the project, including the
need to conduct a comprehensive study on the environmental impact of the reclamation project,
which is the heart of the petition before us. Therefore, the contents of the two resolutions
submitted by respondent Province do not support its conclusion that the subsequent favorable
endorsement of the LGUs had already addressed all the issues raised and rendered the instant
petition moot and academic.

On the issue of failure to exhaust administrative


remedies

Respondents, in essence, argue that the present petition should be dismissed for
petitioners failure to exhaust administrative remedies and even to observe the hierarchy of
courts. Furthermore, as the petition questions the issuance of the ECC and the NTP, this
involves factual and technical verification, which are more properly within the expertise of the
concerned government agencies.

Respondents anchor their argument on Section 6, Article II of DENR DAO 2003-30, which
provides:
Section 6. Appeal

Any party aggrieved by the final decision on the ECC / CNC applications may, within 15
days from receipt of such decision, file an appeal on the following grounds:

a. Grave abuse of discretion on the part of the deciding authority, or


b. Serious errors in the review findings.

The DENR may adopt alternative conflict/dispute resolution procedures as a means to settle
grievances between proponents and aggrieved parties to avert unnecessary legal action. Frivolous
appeals shall not be countenanced.

The proponent or any stakeholder may file an appeal to the following:

Deciding Authority Where to file the appeal


EMB Regional Office Director Office of the EMB Director
EMB Central Office Director Office of the DENR Secretary
DENR Secretary Office of the President
(Emphases supplied.)

Respondents argue that since there is an administrative appeal provided for, then
petitioner is duty bound to observe the same and may not be granted recourse to the regular
courts for its failure to do so.

We do not agree with respondents appreciation of the applicability of the rule on


exhaustion of administrative remedies in this case. We are reminded of our ruling in Pagara v.
Court of Appeals,[136] which summarized our earlier decisions on the procedural requirement of
exhaustion of administrative remedies, to wit:

The rule regarding exhaustion of administrative remedies is not a hard and fast rule. It is
not applicable (1) where the question in dispute is purely a legal one, or (2) where the
controverted act is patently illegal or was performed without jurisdiction or in excess of
jurisdiction; or (3) where the respondent is a department secretary, whose acts as an alter ego of
the President bear the implied or assumed approval of the latter, unless actually disapproved by
him, or (4) where there are circumstances indicating the urgency of judicial
intervention, - Gonzales vs. Hechanova, L-21897, October 22, 1963, 9 SCRA 230;
Abaya vs. Villegas, L-25641, December 17, 1966, 18 SCRA; Mitra vs. Subido, L-21691,
September 15, 1967, 21 SCRA 127.

Said principle may also be disregarded when it does not provide a plain, speedy and
adequate remedy, (Cipriano vs. Marcelino, 43 SCRA 291), when there is no due process
observed (Villanos vs. Subido, 45 SCRA 299), or where the protestant has no other
recourse (Sta. Maria vs. Lopez, 31 SCRA 637).[137] (Emphases supplied.)
As petitioner correctly pointed out, the appeal provided for under Section 6 of DENR
DAO 2003-30 is only applicable, based on the first sentence thereof, if the person or entity
charged with the duty to exhaust the administrative remedy of appeal to the appropriate
government agency has been a party or has been made a party in the proceedings wherein the
decision to be appealed was rendered. It has been established by the facts that petitioner was
never made a party to the proceedings before respondent DENR-EMB RVI. Petitioner was
only informed that the project had already been approved after the ECC was already granted.
[138]
Not being a party to the said proceedings, it does not appear that petitioner was officially
furnished a copy of the decision, from which the 15-day period to appeal should be reckoned,
and which would warrant the application of Section 6, Article II of DENR DAO 2003-30.

Although petitioner was not a party to the proceedings where the decision to issue an
ECC was rendered, it stands to be aggrieved by the decision, [139] because it claims that the
reclamation of land on the Caticlan side would unavoidably adversely affect the Boracay side,
where petitioners members own establishments engaged in the tourism trade. As noted earlier,
petitioner contends that the declared objective of the reclamation project is to exploit Boracays
tourism trade because the project is intended to enhance support services thereto; however, this
objective would not be achieved since the white-sand beaches for which Boracay is famous
might be negatively affected by the project.Petitioners conclusion is that respondent Province,
aided and abetted by respondents PRA and DENR-EMB RVI, ignored the spirit and letter of our
environmental laws, and should thus be compelled to perform their duties under said laws.

The new Rules of Procedure for Environmental Cases, A.M. No. 09-6-8-SC, provides a
relief for petitioner under the writ of continuing mandamus, which is a special civil action that
may be availed of to compel the performance of an act specifically enjoined by law[140] and
which provides for the issuance of a TEPO as an auxiliary remedy prior to the issuance of the
writ itself.[141] The Rationale of the said Rules explains the writ in this wise:

Environmental law highlights the shift in the focal-point from the initiation of regulation
by Congress to the implementation of regulatory programs by the appropriate government
agencies.

Thus, a government agencys inaction, if any, has serious implications on the future
of environmental law enforcement. Private individuals, to the extent that they seek to
change the scope of the regulatory process, will have to rely on such agencies to take the
initial incentives, which may require a judicial component. Accordingly, questions
regarding the propriety of an agencys action or inaction will need to be analyzed.

This point is emphasized in the availability of the remedy of the writ of mandamus,
which allows for the enforcement of the conduct of the tasks to which the writ pertains: the
performance of a legal duty.[142] (Emphases added.)
The writ of continuing mandamus permits the court to retain jurisdiction after judgment
in order to ensure the successful implementation of the reliefs mandated under the courts
decision and, in order to do this, the court may compel the submission of compliance reports
from the respondent government agencies as well as avail of other means to monitor
compliance with its decision.[143]

According to petitioner, respondent Province acted pursuant to a MOA with respondent


PRA that was conditioned upon, among others, a properly-secured ECC from respondent
DENR-EMB RVI. For this reason, petitioner seeks to compel respondent Province to comply
with certain environmental laws, rules, and procedures that it claims were either circumvented
or ignored. Hence, we find that the petition was appropriately filed with this Court under Rule
8, Section 1, A.M. No. 09-6-8-SC, which reads:

SECTION 1. Petition for continuing mandamus.When any agency or instrumentality of


the government or officer thereof unlawfully neglects the performance of an act which the law
specifically enjoins as a duty resulting from an office, trust or station in connection with the
enforcement or violation of an environmental law rule or regulation or a right therein, or
unlawfully excludes another from the use or enjoyment of such right and there is no other plain,
speedy and adequate remedy in the ordinary course of law, the person aggrieved thereby may file
a verified petition in the proper court, alleging the facts with certainty, attaching thereto
supporting evidence, specifying that the petition concerns an environmental law, rule or
regulation, and praying that judgment be rendered commanding the respondent to do an act or
series of acts until the judgment is fully satisfied, and to pay damages sustained by the petitioner
by reason of the malicious neglect to perform the duties of the respondent, under the law, rules or
regulations. The petition shall also contain a sworn certification of non-forum shopping.

SECTION 2. Where to file the petition.The petition shall be filed with the Regional Trial
Court exercising jurisdiction over the territory where the actionable neglect or omission occurred
or with the Court of Appeals or the Supreme Court.

Petitioner had three options where to file this case under the rule: the Regional Trial
Court exercising jurisdiction over the territory where the actionable neglect or omission
occurred, the Court of Appeals, or this Court.

Petitioner had no other plain, speedy, or adequate remedy in the ordinary course of law to
determine the questions of unique national and local importance raised here that pertain to laws
and rules for environmental protection, thus it was justified in coming to this Court.

Having resolved the procedural issue, we now move to the substantive issues.

On the issues of whether, based on the scope and


classification of the project, a full EIA is required by
laws and regulations, and whether respondent
Province complied with all the requirements under
the pertinent laws and regulations
Petitioners arguments on this issue hinges upon its claim that the reclamation project is
misclassified as a single project when in fact it is co-located. Petitioner also questions the
classification made by respondent Province that the reclamation project is merely an expansion
of the existing jetty port, when the project descriptions embodied in the different documents
filed by respondent Province describe commercial establishments to be built, among others, to
raise revenues for the LGU; thus, it should have been classified as a new project. Petitioner
likewise cries foul to the manner by which respondent Province allegedly circumvented the
documentary requirements of the DENR-EMB RVI by the act of connecting the reclamation
project with its previous project in 1999 and claiming that the new project is a mere expansion
of the previous one.

As previously discussed, respondent Province filed a Manifestation and Motion stating


that the ECC issued by respondent DENR-EMB RVI covered an area of 2,691 square meters in
Caticlan, and its application for reclamation of 40 hectares with respondent PRA was
conditioned on its submission of specific documents within 120 days.Respondent Province
claims that its failure to comply with said condition indicated its waiver to pursue
the succeeding phases of the reclamation project and that the subject matter of this case had thus
been limited to 2.64 hectares. Respondent PRA, for its part, declared through its General
Manager that the Aklan Beach Zone Restoration and Protection Marine Development Project
will now be confined to the reclamation and development of the 2.64 hectares, more or less.[144]

The Court notes such manifestation of respondent Province. Assuming, however, that the
area involved in the subject reclamation project has been limited to 2.64 hectares, this case has
not become moot and academic, as alleged by respondents, because the Court still has to check
whether respondents had complied with all applicable environmental laws, rules, and
regulations pertaining to the actual reclamation project.

We recognize at this point that the DENR is the government agency vested with
delegated powers to review and evaluate all EIA reports, and to grant or deny ECCs to project
proponents.[145] It is the DENR that has the duty to implement the EIS system. It appears,
however, that respondent DENR-EMB RVIs evaluation of this reclamation project was
problematic, based on the valid questions raised by petitioner.

Being the administrator of the EIS System, respondent DENR-EMB RVIs submissions
bear great weight in this case. However, the following are the issues that put in question the
wisdom of respondent DENR-EMB RVI in issuing the ECC:
1. Its approval of respondent Provinces classification of the project as a mere
expansion of the existing jetty port in Caticlan, instead of classifying it as a new
project;
2. Its classification of the reclamation project as a single instead of a co-
located project;
3. The lack of prior public consultations and approval of local government agencies;
and
4. The lack of comprehensive studies regarding the impact of the reclamation project
to the environment.
The above issues as raised put in question the sufficiency of the evaluation of the project
by respondent DENR-EMB RVI.

Nature of the project

The first question must be answered by respondent DENR-EMB RVI as the agency with
the expertise and authority to state whether this is a new project, subject to the more rigorous
environmental impact study requested by petitioner, or it is a mere expansion of the existing
jetty port facility.

The second issue refers to the classification of the project by respondent Province,
approved by respondent DENR-EMB RVI, as single instead of co-located. Under the Revised
Procedural Manual, the Summary List of Additional Non-Environmentally-Critical Project
(NECP) Types in ECAs Classified under Group II (Table I-2) lists buildings, storage
facilities and other structures as a separate item from transport terminal facilities. This creates
the question of whether this project should be considered as consisting of more than one type of
activity, and should more properly be classified as co-located, under the following definition
from the same Manual, which reads:

f) Group IV (Co-located Projects in either ECA or NECA): A co-located project is a group


of single projects, under one or more proponents/locators, which are located in a
contiguous area and managed by one administrator, who is also the ECC
applicant. The co-located project may be an economic zone or industrial park, or a mix
of projects within a catchment, watershed or river basin, or any other geographical,
political or economic unit of area. Since the location or threshold of specific projects
within the contiguous area will yet be derived from the EIA process based on the carrying
capacity of the project environment, the nature of the project is called
programmatic. (Emphasis added.)
Respondent DENR-EMB RVI should conduct a thorough and detailed evaluation of the
project to address the question of whether this could be deemed as a group of single projects
(transport terminal facility, building, etc.) in a contiguous area managed by respondent
Province, or as a single project.

The third item in the above enumeration will be discussed as a separate issue.

The answer to the fourth question depends on the final classification of the project under
items 1 and 3 above because the type of EIA study required under the Revised Procedural
Manual depends on such classification.

The very definition of an EIA points to what was most likely neglected by respondent
Province as project proponent, and what was in turn overlooked by respondent DENR-EMB
RVI, for it is defined as follows:

An [EIA] is a process that involves predicting and evaluating the likely impacts of a project
(including cumulative impacts) on the environment during construction, commissioning, operation and
abandonment. It also includes designing appropriate preventive, mitigating and enhancement measures
addressing these consequences to protect the environment and the communitys welfare. [146] (Emphases
supplied.)

Thus, the EIA process must have been able to predict the likely impact of the
reclamation project to the environment and to prevent any harm that may otherwise be caused.

The project now before us involves reclamation of land that is more than five times the
size of the original reclaimed land. Furthermore, the area prior to construction merely
contained a jetty port, whereas the proposed expansion, as described in the EPRMP submitted
by respondent Province to respondent DENR-EMB RVI involves so much more, and we quote:

The expansion project will be constructed at the north side of the existing jetty port and
terminal that will have a total area of 2.64 hectares, more or less, after reclamation. The Phase 1
of the project construction costing around P260 million includes the following:

1. Reclamation - 3,000 sq m (expansion of jetty port)

2. Reclamation - 13,500 sq m (buildable area)

3. Terminal annex building - 250 sq m

4. 2-storey commercial building 2,500 sq m (1,750 sq m of leasable space)


5. Health and wellness center

6. Access road - 12 m (wide)

7. Parking, perimeter fences, lighting and water treatment sewerage system

8. Rehabilitation of existing jetty port and terminal

xxxx

The succeeding phases of the project will consist of [further] reclamation, completion of the
commercial center building, bay walk commercial strip, staff building, ferry terminal, a cable car
system and wharf marina. This will entail an additional estimated cost of P785 million bringing
the total investment requirement to about P1.0 billion.[147] (Emphases added.)

As may be gleaned from the breakdown of the 2.64 hectares as described by respondent
Province above, a significant portion of the reclaimed area would be devoted to the construction
of a commercial building, and the area to be utilized for the expansion of the jetty port consists
of a mere 3,000 square meters (sq. m). To be true to its definition, the EIA report submitted by
respondent Province should at the very least predict the impact that the construction of the new
buildings on the reclaimed land would have on the surrounding environment. These new
constructions and their environmental effects were not covered by the old studies that
respondent Province previously submitted for the construction of the original jetty port in 1999,
and which it re-submitted in its application for ECC in this alleged expansion, instead of
conducting updated and more comprehensive studies.

Any impact on the Boracay side cannot be totally ignored, as Caticlan and Boracay are
separated only by a narrow strait. This becomes more imperative because of the significant
contributions of Boracays white-sand beach to the countrys tourism trade, which requires
respondent Province to proceed with utmost caution in implementing projects within its
vicinity.

We had occasion to emphasize the duty of local government units to ensure the quality of
the environment under Presidential Decree No. 1586 in Republic of the Philippines v. The City
of Davao,[148] wherein we held:

Section 15 of Republic Act 7160, otherwise known as the Local Government Code,
defines a local government unit as a body politic and corporate endowed with powers to be
exercised by it in conformity with law. As such, it performs dual functions, governmental and
proprietary. Governmental functions are those that concern the health, safety and the
advancement of the public good or welfare as affecting the public generally. Proprietary
functions are those that seek to obtain special corporate benefits or earn pecuniary profit and
intended for private advantage and benefit. When exercising governmental powers and
performing governmental duties, an LGU is an agency of the national government. When
engaged in corporate activities, it acts as an agent of the community in the administration of local
affairs.

Found in Section 16 of the Local Government Code is the duty of the LGUs to
promote the peoples right to a balanced ecology. Pursuant to this, an LGU, like the City of
Davao, can not claim exemption from the coverage of PD 1586. As a body politic endowed with
governmental functions, an LGU has the duty to ensure the quality of the environment, which is
the very same objective of PD 1586.

xxxx

Section 4 of PD 1586 clearly states that no person, partnership or corporation shall


undertake or operate any such declared environmentally critical project or area without first
securing an Environmental Compliance Certificate issued by the President or his duly authorized
representative. The Civil Code defines a person as either natural or juridical. The state and its
political subdivisions, i.e., the local government units are juridical persons. Undoubtedly
therefore, local government units are not excluded from the coverage of PD 1586.

Lastly, very clear in Section 1 of PD 1586 that said law intends to implement the policy
of the state to achieve a balance between socio-economic development and environmental
protection, which are the twin goals of sustainable development. The above-quoted first
paragraph of the Whereas clause stresses that this can only be possible if we adopt a
comprehensive and integrated environmental protection program where all the sectors of
the community are involved, i.e., the government and the private sectors. The local
government units, as part of the machinery of the government, cannot therefore be deemed
as outside the scope of the EIS system.[149] (Emphases supplied.)

The Court chooses to remand these matters to respondent DENR-EMB RVI for it to make
a proper study, and if it should find necessary, to require respondent Province to address these
environmental issues raised by petitioner and submit the correct EIA report as required by the
projects specifications. The Court requires respondent DENR-EMB RVI to complete its study
and submit a report within a non-extendible period of three months. Respondent DENR-EMB
RVI should establish to the Court in said report why the ECC it issued for the subject project
should not be canceled.

Lack of prior public consultation

The Local Government Code establishes the duties of national government agencies in
the maintenance of ecological balance, and requires them to secure prior public consultation
and approval of local government units for the projects described therein.

In the case before us, the national agency involved is respondent PRA. Even if the project
proponent is the local government of Aklan, it is respondent PRA which authorized the
reclamation, being the exclusive agency of the government to undertake reclamation
nationwide. Hence, it was necessary for respondent Province to go through respondent PRA and
to execute a MOA, wherein respondent PRAs authority to reclaim was delegated to respondent
Province. Respondent DENR-EMB RVI, regional office of the DENR, is also a national
government institution which is tasked with the issuance of the ECC that is a prerequisite to
projects covered by environmental laws such as the one at bar.

This project can be classified as a national project that affects the environmental and
ecological balance of local communities, and is covered by the requirements found in the Local
Government Code provisions that are quoted below:

Section 26. Duty of National Government Agencies in the Maintenance of Ecological


Balance. - It shall be the duty of every national agency or government-owned or controlled
corporation authorizing or involved in the planning and implementation of any project or
program that may cause pollution, climatic change, depletion of non-renewable resources, loss of
crop land, rangeland, or forest cover, and extinction of animal or plant species, to consult with
the local government units, nongovernmental organizations, and other sectors concerned and
explain the goals and objectives of the project or program, its impact upon the people and the
community in terms of environmental or ecological balance, and the measures that will be
undertaken to prevent or minimize the adverse effects thereof.

Section 27. Prior Consultations Required. - No project or program shall be implemented


by government authorities unless the consultations mentioned in Sections 2 (c) and 26 hereof are
complied with, and prior approval of the sanggunian concerned is obtained: Provided, That
occupants in areas where such projects are to be implemented shall not be evicted unless
appropriate relocation sites have been provided, in accordance with the provisions of the
Constitution.

In Lina, Jr. v. Pao,[150] we held that Section 27 of the Local Government Code applies only to
national programs and/or projects which are to be implemented in a particular local
community[151] and that it should be read in conjunction with Section 26. We held further in this
manner:

Thus, the projects and programs mentioned in Section 27 should be interpreted to mean
projects and programs whose effects are among those enumerated in Section 26 and 27, to wit,
those that: (1) may cause pollution; (2) may bring about climatic change; (3) may cause the
depletion of non-renewable resources; (4) may result in loss of crop land, range-land, or forest
cover; (5) may eradicate certain animal or plant species from the face of the planet; and (6) other
projects or programs that may call for the eviction of a particular group of people residing in the
locality where these will be implemented. Obviously, none of these effects will be produced by
the introduction of lotto in the province of Laguna.[152] (Emphasis added.)

During the oral arguments held on September 13, 2011, it was established that this project
as described above falls under Section 26 because the commercial establishments to be built on
phase 1, as described in the EPRMP quoted above, could cause pollution as it could generate
garbage, sewage, and possible toxic fuel discharge.[153]

Our ruling in Province of Rizal v. Executive Secretary[154] is instructive:

We reiterated this doctrine in the recent case of Bangus Fry Fisherfolk v. Lanzanas, where
we held that there was no statutory requirement for the sangguniang bayan of Puerto Galera to
approve the construction of a mooring facility, as Sections 26 and 27 are inapplicable to projects
which are not environmentally critical.

Moreover, Section 447, which enumerates the powers, duties and functions of the
municipality, grants the sangguniang bayan the power to, among other things, enact ordinances,
approve resolutions and appropriate funds for the general welfare of the municipality and its
inhabitants pursuant to Section 16 of th(e) Code. These include:

(1) Approving ordinances and passing resolutions to protect the environment and
impose appropriate penalties for acts which endanger the environment, such as
dynamite fishing and other forms of destructive fishing, illegal logging and
smuggling of logs, smuggling of natural resources products and of endangered
species of flora and fauna, slash and burn farming, and such other activities which
result in pollution, acceleration of eutrophication of rivers and lakes, or of
ecological imbalance; [Section 447 (1)(vi)]

(2) Prescribing reasonable limits and restraints on the use of property within the
jurisdiction of the municipality, adopting a comprehensive land use plan for the
municipality, reclassifying land within the jurisdiction of the city, subject to the
pertinent provisions of this Code, enacting integrated zoning ordinances in
consonance with the approved comprehensive land use plan, subject to existing
laws, rules and regulations; establishing fire limits or zones, particularly in
populous centers; and regulating the construction, repair or modification of
buildings within said fire limits or zones in accordance with the provisions of this
Code; [Section 447 (2)(vi-ix)]

(3) Approving ordinances which shall ensure the efficient and effective delivery of
the basic services and facilities as provided for under Section 17 of this Code, and
in addition to said services and facilities, providing for the establishment,
maintenance, protection, and conservation of communal forests and watersheds,
tree parks, greenbelts, mangroves, and other similar forest development
projects and, subject to existing laws, establishing and providing for the
maintenance, repair and operation of an efficient waterworks system to supply
water for the inhabitants and purifying the source of the water supply; regulating
the construction, maintenance, repair and use of hydrants, pumps, cisterns and
reservoirs; protecting the purity and quantity of the water supply of the
municipality and, for this purpose, extending the coverage of appropriate
ordinances over all territory within the drainage area of said water supply and
within one hundred (100) meters of the reservoir, conduit, canal, aqueduct,
pumping station, or watershed used in connection with the water service; and
regulating the consumption, use or wastage of water. [Section 447 (5)(i) & (vii)]
Under the Local Government Code, therefore, two requisites must be met before a
national project that affects the environmental and ecological balance of local communities
can be implemented: prior consultation with the affected local communities, and
prior approval of the project by the appropriate sanggunian. Absent either of these
mandatory requirements, the projects implementation is illegal.[155] (Emphasis added.)

Based on the above, therefore, prior consultations and prior approval are required
by law to have been conducted and secured by the respondent Province.Accordingly, the
information dissemination conducted months after the ECC had already been issued was
insufficient to comply with this requirement under the Local Government Code. Had they been
conducted properly, the prior public consultation should have considered the ecological or
environmental concerns of the stakeholders and studied measures alternative to the project, to
avoid or minimize adverse environmental impact or damage. In fact, respondent Province once
tried to obtain the favorable endorsement of the Sangguniang Bayan of Malay, but this was
denied by the latter.

Moreover, DENR DAO 2003-30 provides:

5.3 Public Hearing / Consultation Requirements

For projects under Category A-1, the conduct of public hearing as part of the EIS review is
mandatory unless otherwise determined by EMB. For all other undertakings, a public
hearing is not mandatory unless specifically required by EMB.

Proponents should initiate public consultations early in order to ensure that


environmentally relevant concerns of stakeholders are taken into consideration in
the EIA study and the formulation of the management plan. All public consultations
and public hearings conducted during the EIA process are to be documented. The public
hearing/consultation Process report shall be validated by the EMB/EMB RD and shall
constitute part of the records of the EIA process. (Emphasis supplied.)

In essence, the above-quoted rule shows that in cases requiring public consultations, the same
should be initiated early so that concerns of stakeholders could be taken into consideration in
the EIA study. In this case, respondent Province had already filed its ECC application before it
met with the local government units of Malay and Caticlan.

The claim of respondent DENR-EMB RVI is that no permits and/or clearances from National
Government Agencies (NGAs) and LGUs are required pursuant to the DENR Memorandum
Circular No. 2007-08. However, we still find that the LGC requirements of consultation and
approval apply in this case. This is because a Memorandum Circular cannot prevail over the
Local Government Code, which is a statute and which enjoys greater weight under our
hierarchy of laws.
Subsequent to the information campaign of respondent Province, the Municipality of
Malay and the Liga ng mga Barangay-Malay Chapter still opposed the project. Thus, when
respondent Province commenced the implementation project, it violated Section 27 of the LGC,
which clearly enunciates that [no] project or program shall be implemented by government
authorities unless the consultations mentioned in Sections 2(c) and 26 hereof are complied with,
and prior approval of the sanggunian concerned is obtained.

The lack of prior public consultation and approval is not corrected by the subsequent
endorsement of the reclamation project by the Sangguniang Barangay of Caticlan on February
13, 2012, and the Sangguniang Bayan of the Municipality of Malay on February 28, 2012,
which were both undoubtedly achieved at the urging and insistence of respondent Province. As
we have established above, the respective resolutions issued by the LGUs concerned did not
render this petition moot and academic.

It is clear that both petitioner and respondent Province are interested in the promotion of
tourism in Boracay and the protection of the environment, lest they kill the proverbial hen that
lays the golden egg. At the beginning of this decision, we mentioned that there are common
goals of national significance that are very apparent from both the petitioners and the
respondents respective pleadings and memoranda.

The parties are evidently in accord in seeking to uphold the mandate found in Article
II, Declaration of Principles and State Policies, of the 1987 Constitution, which we quote
below:

SECTION 16. The State shall protect and advance the right of the people to a balanced
and healthful ecology in accord with the rhythm and harmony of nature.

xxxx

SECTION 20. The State recognizes the indispensable role of the private sector,
encourages private enterprise, and provides incentives to needed investments.

The protection of the environment in accordance with the aforesaid constitutional mandate is
the aim, among others, of Presidential Decree No. 1586, Establishing an Environmental Impact
Statement System, Including Other Environmental Management Related Measures and For
Other Purposes, which declared in its first Section that it is the policy of the State to attain
and maintain a rational and orderly balance between socio-economic growth and
environmental protection.
The parties undoubtedly too agree as to the importance of promoting tourism, pursuant to
Section 2 of Republic Act No. 9593, or The Tourism Act of 2009, which reads:
SECTION 2. Declaration of Policy. The State declares tourism as an indispensable
element of the national economy and an industry of national interest and importance,
which must be harnessed as an engine of socioeconomic growth and cultural affirmation to
generate investment, foreign exchange and employment, and to continue to mold an enhanced
sense of national pride for all Filipinos. (Emphasis ours.)

The primordial role of local government units under the Constitution and the Local Government
Code of 1991 in the subject matter of this case is also unquestionable. The Local Government
Code of 1991 (Republic Act No. 7160) pertinently provides:

Section 2. Declaration of Policy. - (a) It is hereby declared the policy of the State that
the territorial and political subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-reliant
communities and make them more effective partners in the attainment of national
goals. Toward this end, the State shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization whereby local government
units shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government units.
[156]
(Emphases ours.)

As shown by the above provisions of our laws and rules, the speedy and smooth
resolution of these issues would benefit all the parties. Thus, respondent Provinces cooperation
with respondent DENR-EMB RVI in the Court-mandated review of the proper classification
and environmental impact of the reclamation project is of utmost importance.

WHEREFORE, premises considered, the petition is hereby PARTIALLY


GRANTED. The TEPO issued by this Court is hereby converted into a writ of
continuing mandamus specifically as follows:

1. Respondent Department of Environment and Natural Resources-Environmental


Management Bureau Regional Office VI shall revisit and review the following
matters:

a. its classification of the reclamation project as a single instead of a co-located


project;
b. its approval of respondent Provinces classification of the project as a mere
expansion of the existing jetty port in Caticlan, instead of classifying it as a
new project; and
c. the impact of the reclamation project to the environment based on new,
updated, and comprehensive studies, which should forthwith be ordered by
respondent DENR-EMB RVI.

2. Respondent Province of Aklan shall perform the following:

a. fully cooperate with respondent DENR-EMB RVI in its review of the


reclamation project proposal and submit to the latter the appropriate report
and study; and
b. secure approvals from local government units and hold proper consultations
with non-governmental organizations and other stakeholders and sectors
concerned as required by Section 27 in relation to Section 26 of the Local
Government Code.

3. Respondent Philippine Reclamation Authority shall closely monitor the


submission by respondent Province of the requirements to be issued by
respondent DENR-EMB RVI in connection to the environmental concerns raised
by petitioner, and shall coordinate with respondent Province in modifying the
MOA, if necessary, based on the findings of respondent DENR-EMB RVI.

4. The petitioner Boracay Foundation, Inc. and the respondents The Province of
Aklan, represented by Governor Carlito S. Marquez, The Philippine
Reclamation Authority, and The DENR-EMB (Region VI) are mandated to
submit their respective reports to this Court regarding their compliance with the
requirements set forth in this Decision no later than three (3) months from the
date of promulgation of this Decision.

5. In the meantime, the respondents, their concerned contractor/s, and/or their


agents, representatives or persons acting in their place or stead, shall
immediately cease and desist from continuing the implementation of the project
covered by ECC-R6-1003-096-7100 until further orders from this Court. For this
purpose, the respondents shall report within five (5) days to this Court the status
of the project as of their receipt of this Decision, copy furnished the petitioner.

This Decision is immediately executory.

SO ORDERED.
[G.R. No. 136142. October 24, 2000]

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ALFONSO DATOR and


BENITO GENOL, accused (Acquitted)
PASTOR TELEN, accused-appellant.

DECISION
DE LEON, JR., J.:

Before us on appeal is the Decision [1] of the Regional Trial Court of Maasin, Southern Leyte,
Branch 25, in Criminal Case No. 1733 convicting the appellant of the crime of violation of Presidential
Decree No. 705.
Pastor Telen and his co-accused, Alfonso Dator and Benito Genol, were charged with the crime of
violation of Section 68 [2] of Presidential Decree No. 705, otherwise known as the Revised Forestry
Code,[3] in an Information that reads:

That on or about the 29th day of October, 1993 at around 8:00 oclock in the evening, in barangay
Laboon, municipality of Maasin, province of Southern Leyte, Philippines, and within the
jurisdiction of this Honorable Court, the above-named accused conspiring, confederating and
mutually helping each other, with intent of gain, did then and there wilfully, unlawfully and
feloniously possess 1,560.16 board feet of assorted lumber flitches valued at TWENTY-THREE
THOUSAND FIVE HUNDRED PESOS (23,500.00), Philippine Currency, without any legal
document as required under existing forest laws and regulations from proper government
authorities, to the damage and prejudice of the government.

CONTRARY TO LAW.

Upon being arraigned on May 27, 1994, Pastor Telen and his co-accused, Alfonso Dator and
Benito Genol, assisted by counsel, separately entered the plea of Not guilty to the charge in the
Information. Thereafter, trial on the merits ensued.
It appears that on October 29, 1993, Police Station Commander Alejandro Rojas of Maasin,
Southern Leyte, and SPO1 Necitas Bacala, were on board a police patrol vehicle heading towards
Barangay San Rafael, Maasin, Southern Leyte. Upon reaching Barangay Laboon of the same
municipality, they noticed a Isuzu cargo truck loaded with pieces of lumber bound toward the town
proper of Maasin. Suspicious that the cargo was illegally cut pieces of lumber, Police Station
Commander Rojas maneuvered their police vehicle and gave chase. [4]
Upon catching up with the Isuzu cargo truck in Barangay Soro-soro, Maasin, Southern Leyte,
they ordered the driver, accused Benito Genol, to pull over. Benito Genol was left alone in the truck
after his companions hurriedly left. When asked if he had the required documents for the proper
transport of the pieces of lumber, Genol answered in the negative. Genol informed the police
authorities that the pieces of lumber were owned by herein appellant, Pastor Telen, while the Isuzu
cargo truck bearing Plate No. HAF 628 was registered in the name of Southern Leyte Farmers Agro-
Industrial Cooperative, Inc. (SLEFAICO) which is a local cooperative. Consequently, Police Officers
Rojas and Bacala directed Benito Genol to proceed to the Maasin Police Station, Maasin, Southern
Leyte for further investigation.[5]
On November 5, 1993, Forest Ranger Romeo Galola was fetched from his office at the
Community Environment and Natural Resources Office (CENRO), Maasin, Southern Leyte by SPO1
Necitas Bacala to inspect the pieces of lumber that were confiscated on October 29, 1993 in Soro-
soro, Maasin, Southern Leyte from Pastor Telen. Galola and his immediate supervisor, Sulpicio
Saguing, found that the cargo consisted of forty-one (41) pieces of Dita lumber and ten (10) pieces of
Antipolo lumber of different dimensions with a total volume of 1,560.16 board feet. [6]
Subsequently, SPO1 Bacala issued a seizure receipt [7] covering the fifty-one (51) pieces of
confiscated Dita and Antipolo lumber and one (1) unit of Isuzu cargo truck with Plate No. HAF
628. The confiscated pieces of lumber and the cargo truck were turned over to SPO3 Daniel Lasala,
PNP Property Custodian, Maasin, Southern Leyte who, in turn, officially transferred custody of the
same to the CENRO, Maasin, Southern Leyte. [8]
The defense denied any liability for the crime charged in the Information. Pastor Telen, a utility
worker at the Integrated Provincial Health Office, Southern Leyte for nineteen (19) years, testified that
he needed lumber to be used in renovating the house of his grandparents in Barangay Abgao,
Maasin, Southern Leyte where he maintained residence. Knowing that it was prohibited by law to cut
trees without appropriate permit from the Department of Environment and Natural Resources
(DENR), Telen sought the assistance of a certain Lando dela Pena who was an employee at the
CENRO, Maasin, Southern Leyte. Dela Pena accompanied Telen to the office of a certain Boy
Leonor, who was the Officer in Charge of CENRO in Maasin, Southern Leyte. Leonor did not approve
of the plan of Telen to cut teak or hard lumber from his (Telen) mothers track of land in Tabunan, San
Jose, Maasin, Southern Leyte. However, Leonor allegedly allowed Telen to cut the aging Dita trees
only. According to Telen, Leonor assured him that a written permit was not anymore necessary before
he could cut the Dita trees, which are considered soft lumber, from the private land of his mother,
provided the same would be used exclusively for the renovation of his house and that he shall plant
trees as replacement thereof, which he did by planting Gemelina seedlings. [9]
On September 15, 1993, Telen requested his cousin, Vicente Sabalo, to hire for him a cargo truck
in order to haul the sawn lumber from the land of his mother in Tabunan, San Jose, Maasin, Southern
Leyte. His cousin obliged after Telen assured him that he had already secured verbal permission from
Boy Leonor, Officer in Charge of CENRO in Maasin, Southern Leyte, before cutting the said lumber. [10]
After having been informed by Vicente Sabalo on October 29, 1993 at about 4:00 oclock in the
afternoon that a cargo truck was available for hire, Telen instructed his cousin to personally supervise
the hauling of the sawn lumber for him inasmuch as he was busy with his work in the office. At around
7:00 oclock in the evening, Telen learned from his daughter that the sawn lumber were confiscated by
the police in Barangay Soro-soro, Maasin, Southern Leyte. [11]
Upon arrival in Barangay Soro-Soro, Telen was accosted by Police Station Commander Alejandro
Rojas who demanded from him DENR permit for the sawn lumber. After confirming ownership of the
sawn lumber, Telen explained to Rojas that he had already secured verbal permission from Boy
Leonor to cut Dita trees, which are considered soft lumber, to be used in the renovation of his house
and that he had already replaced the sawn Dita trees with Gemelina seedlings, but to no avail. Rojas
ordered that the pieces of lumber and the Isuzu cargo truck be impounded at the municipal building of
Maasin, Southern Leyte for failure of Telen to produce the required permit from the DENR. [12]
Pastor Telen appeared before Bert Pesidas, CENRO hearing officer, in Maasin, Southern Leyte
for investigation in connection with the confiscated pieces of lumber. Telen had tried to contact
Officer-in-Charge Boy Leonor of the CENRO Maasin, Southern Leyte after the confiscation of the
sawn lumber on October 29, 1993 and even during the investigation conducted by the CENRO
hearing officer for three (3) times but to no avail, for the reason that Boy Leonor was assigned at a
reforestation site in Danao, Cebu province.[13]
Alfonso Dator, was the accounting manager of SLEFAICO, Inc., a local cooperative engaged in
buying and selling abaca fibers. Dator testified that on October 29, 1993 at 3:00 oclock in the
afternoon, a certain Vicente Sabalo, accompanied by their company driver, Benito Genol, proposed to
hire the Isuzu cargo truck owned by SLEFAICO, Inc. to haul pieces of coconut lumber from Barangay
San Jose to Barangay Soro-soro in Maasin, Southern Leyte. He readily acceded to the proposal
inasmuch as the owner of the alleged coconut lumber, according to Sabalo, was Pastor Telen, who is
a long time friend and former officemate at the provincial office of the Department of Health. Besides,
the fee to be earned from the hauling services meant additional income for the cooperative. [14]
At about 6:00 oclock in the evening of the same day, Dator met the Isuzu cargo truck of
SLEFAICO, Inc. at the Canturing bridge in Maasin, Southern Leyte, being escorted by a police patrol
vehicle, heading towards the municipal town proper. At the municipal hall building of Maasin, he
learned that the Isuzu truck was apprehended by the police for the reason that it contained a cargo of
Dita and Antipolo lumber without the required permit from the DENR. He explained to the police
authorities that the Isuzu cargo truck was hired merely to transport coconut lumber, however, it was
impounded at the municipal building just the same. [15] Due to the incident Dator lost his job as
accounting manager in SLEFAICO, Inc.[16]
For his defense, Benito Genol testified that he was employed by the SLEFAICO, Inc. as driver of
its Isuzu cargo truck. Aside from transporting abaca fibers, the Isuzu cargo truck was also available
for hire.[17]
While Genol was having the two tires of the Isuzu cargo truck vulcanized on October 29, 1993 in
Barangay Mantahan, Maasin, Southern Leyte, Vicente Sabalo approached him andoffered to hire the
services of the cargo truck. Genol accompanied Sabalo to the residence of the accounting manager
of SLEFAICO, Inc., Alfonso Dator, which was nearby, and the latter agreed to the proposal of Sabalo
to hire the Isuzu cargo truck to haul pieces of coconut lumber from San Jose, Maasin, Southern
Leyte, for a fee.[18]
At 4:00 oclock in the afternoon of the same day, Genol, Sabalo and a son of Alfonso Dator,
proceeded to San Jose after fetching about six (6) haulers along the way in Barangay Soro-
soro. Upon arrival in San Jose, Genol remained behind the steering wheel to take a rest. He was
unmindful of the actual nature of the lumber that were being loaded. After the loading, Genol was
instructed to proceed to Barangay Soro-soro in front of the lumberyard of a certain Jimmy Go. Before
the lumber could be unloaded at 8:00 oclock in the evening Genol was approached by Police Station
Commander Alejandro Rojas who demanded DENR permit for the lumber. The pieces of lumber were
confiscated by Rojas after Genol failed to produce the required permit from the DENR office. [19]
Vicente Sabalo corroborated the testimonies of the three (3) accused in this case. He testified in
substance that he was requested by his cousin, Pastor Telen, to engage the services of a cargo truck
to transport sawn pieces of lumber from San Jose to be used in the renovation of his house in Abgao,
Maasin, Southern Leyte; that he approached Benito Genol and offered to hire the services of the
Isuzu cargo truck that he was driving; that both of them asked the permission of Alfonso Dator who
readily acceded to the proposal for a fee of P500.00; [20] that he saw Genol remained behind the
steering wheel as the loading of the lumber was going on in San Jose; and that the lumber and the
Isuzu cargo truck were confiscated in Barangay Soro-soro for failure of his cousin, Pastor Telen, to
show to Police Station Commander Alejandro Rojas any written permit from the DENR for the subject
lumber.[21]
After analyzing the evidence, the trial court rendered a decision, the dispositive portion of which
reads:

WHEREFORE, judgment is rendered as follows:

1. CONVICTING the accused PASTOR TELEN beyond reasonable doubt of the offense charged and
there being no modifying circumstances, and with the Indeterminate Sentence Law being
inapplicable, the herein accused is hereby sentenced to suffer the indivisible penalty of
RECLUSION PERPETUA, with the accessory penalties provided by law, which is two (2) degrees
higher than PRISION MAYOR maximum, the authorized penalty similar to Qualified Theft, and to
pay the costs. His bail for his provisional liberty is hereby cancelled and he shall be committed to
the New Bilibid Prisons, Muntinlupa, Metro Manila thru the Abuyog Regional Prisons, Abuyog,
Leyte via the Provincial Warden, Maasin, Southern Leyte;
2. ACQUITTING co-accused Alfonso Dator and Benito Genol on reasonable doubt for insufficiency of
evidence; and cancelling their bail;
3. CONFISCATING and SEIZING the 1,560.16 board feet of illegal lumber worth P23,500.00 and
ORDERING the CENRO Maasin, Southern Leyte to sell the lumber at public auction under proper
permission from the Court, with the proceeds thereof turned over to the National Government thru
the National Treasury under proper receipt, and to REPORT the fact of sale to this Court duly
covered by documents of sale and other receipts by evidencing the sale within five (5) days from
the consummation of sale; and
4. DIRECTING the CENRO authorities to coordinate with its Regional Office for immediate
administrative proceedings and determination of any administrative liability of the truck owner,
SLEFAICO Inc. if any, otherwise, to release the truck to its owner.

SO ORDERED.

In his appeal Pastor Telen interpose the following assignments of error:


I

THE LOWER COURT ERRED IN FINDING THE ACCUSED-APPELLANT GUILTY BEYOND


REASONABLE DOUBT FOR VIOLATION OF SEC. 68, P. D. 705, AS AMENDED, BEING
CONTRARY TO LAW AND THE EVIDENCE ON RECORD AND FOR BEING NOT IN
CONFORMITY WITH DENR ADMINISTRATIVE ORDER NO. 79, SERIES OF 1990.
II

THE LOWER COURT ERRED IN IMPOSING THE ACCUSED-APPELLANT THE PENALTY


OF RECLUSION PERPETUA FOR THE ALLEGED VIOLATION OF SEC. 68, P. D. 705, AS
AMENDED, IT BEING A PATENTLY ERRONEOUS PENALTY NOT WARRANTED BY ANY
PROVISION OF THE REVISED PENAL CODE OR JURISPRUDENCE.
III

THE LOWER COURT ERRED IN FINDING THAT THE VALUE OF THE CONFISCATED
LUMBER IS P23,500.00 FOR NO EVIDENCE OF SUCH VALUE WAS ESTABLISHED
DURING THE TRIAL.

The appeal is not impressed with merit.


It is not disputed that appellant Pastor Telen is the owner of the fifty-one (51) pieces of assorted
Antipolo and Dita lumber with a total volume of 1,560.16 board feet. He alleged that the pieces of
lumber were cut from the track of land belonging to his mother in San Jose, Maasin, Southern Leyte
which he intended to use in the renovation of his house in Barangay Abgao of the same
municipality. After having been confiscated by the police, while in transit, in Barangay Soro-soro,
appellant Telen failed to produce before the authorities the required legal documents from the DENR
pertaining to the said pieces of lumber.
The fact of possession by the appellant of the subject fifty-one (51) pieces of assorted Antipolo
and Dita lumber, as well as his subsequent failure to produce the legal documents as required under
existing forest laws and regulations constitute criminal liability for violation of Presidential Decree No.
705, otherwise known as the Revised Forestry Code.[22] Section 68 of the code provides:

Section 68. Cutting, Gathering and/or Collecting Timber or Other Forest Products Without
License.-Any person who shall cut, gather, collect, remove timber or other forest products from any
forest land, or timber from alienable or disposable public land, or from private land, without any
authority, or possess timber or other forest products without the legal documents as required under
existing forest laws and regulations, shall be punished with the penalties imposed under Articles
309 and 310 of the Revised Penal Code: Provided, that in the case of partnerships, associations, or
corporations, the officers who ordered the cutting, gathering, collection or possession shall be
liable, and if such officers are aliens, they shall, in addition to the penalty, be deported without
further proceedings on the part of the Commission on Immigration and Deportation.

The Court shall further order the confiscation in favor of the government of the timber or any
forest products cut, gathered, collected, removed, or possessed, as well as the machinery,
equipment, implements and tools illegally used in the area where the timber or forest products are
found.
Appellant Telen contends that he secured verbal permission from Boy Leonor, Officer-in-Charge
of the DENR-CENRO in Maasin, Southern Leyte before cutting the lumber, and that the latter
purportedly assured him that written permit was not anymore necessary before cutting soft lumber,
such as the Antipolo and Dita trees in this case, from a private track of land, to be used in renovating
appellants house, provided that he would plant trees as replacements thereof, which he already did. It
must be underscored that the appellant stands charged with the crime of violation of Section 68 of
Presidential Decree No. 705, a special statutory law, and which crime is considered mala prohibita. In
the prosecution for crimes that are considered mala prohibita, the only inquiry is whether or not the
law has been violated.[23] The motive or intention underlying the act of the appellant is immaterial for
the reason that his mere possession of the confiscated pieces of lumber without the legal documents
as required under existing forest laws and regulations gave rise to his criminal liability.
In any case, the mere allegation of the appellant regarding the verbal permission given by Boy
Leonor, Officer in Charge of DENR-CENRO, Maasin, Southern Leyte, is not sufficient to overturn the
established fact that he had no legal documents to support valid possession of the confiscated pieces
of lumber. It does not appear from the record of this case that appellant exerted any effort during the
trial to avail of the testimony of Boy Leonor to corroborate his allegation. Absent such corroborative
evidence, the trial court did not commit an error in disregarding the bare testimony of the appellant on
this point which is, at best, self-serving.[24]
The appellant cannot validly take refuge under the pertinent provision of DENR Administrative
Order No. 79, Series of 1990[25] which prescribes rules on the deregulation of the harvesting,
transporting and sale of firewood, pulpwood or timber planted in private lands. Appellant submits that
under the said DENR Administrative Order No. 79, no permit is required in the cutting of planted trees
within titled lands except Benguet pine and premium species listed under DENR Administrative Order
No. 78, Series of 1987, namely: narra, molave, dao, kamagong, ipil, acacia, akle, apanit, banuyo,
batikuling, betis, bolong-eta, kalantas, lanete, lumbayao, sangilo, supa, teak, tindalo and manggis.
Concededly, the varieties of lumber for which the appellant is being held liable for illegal
possession do not belong to the premium species enumerated under DENR Administrative Order No.
78, Series of 1987. However, under the same DENR administrative order, a certification from the
CENRO concerned to the effect that the forest products came from a titled land or tax declared
alienable and disposable land must still be secured to accompany the shipment. This the appellant
failed to do, thus, he is criminally liable under Section 68 of Presidential Decree No. 705 necessitating
prior acquisition of permit and legal documents as required under existing forest laws and regulations.
The pertinent portion of DENR Administrative Order No. 79, Series of 1990, is quoted hereunder, to
wit:

In line with the National Reforestation Program and in order to promote the planting of trees by
owners of private lands and give incentives to the tree farmers, Ministry Administrative Order No.
4 dated January 19, 1987 which lifted the restriction in the harvesting, transporting and sale of
firewood, pulpwood or timber produced from Ipil-Ipil (leucaenia spp) and Falcate (Albizzia
falcataria) is hereby amended to include all other tree species planted in private lands except
BENGUET PINE and premium hardwood species. Henceforth, no permit is required in the cutting
of planted trees within the titled lands or tax declared A and D lands with corresponding application
for patent or acquired through court proceedings, except BENGUET PINE and premium species
listed under DENR Administrative Order No 78, Series of 1987, provided, that a certification of the
CENRO concerned to the effect that the forest products came from a titled land or tax declared
alienable and disposable land is issued accompanying the shipment.

Appellant Telen next contends that proof of value of the confiscated pieces of lumber is
indispensable, it being the basis for the computation of the penalty prescribed in Article 309 in relation
to Article 310 of the Revised Penal Code; and that in the absence of any evidence on record to prove
the allegation in the Information that the confiscated pieces of lumber have an equivalent value of
P23,500.00 there can be no basis for the penalty to be imposed and hence, he should be acquitted.
The appellants contention is untenable. It is a basic rule in criminal law that penalty is not an
element of the offense. Consequently, the failure of the prosecution to adduce evidence in support of
its allegation in the Information with respect to the value of the confiscated pieces of lumber is not
necessarily fatal to its case. This Court notes that the estimated value of the confiscated pieces of
lumber, as appearing in the official transmittal letter [26] of the DENR-CENRO, Maasin, Southern Leyte
addressed to the Office of the Provincial Prosecutor of the same province, is P23,500.00 which is
alleged in the Information. However, the said transmittal letter cannot serve as evidence or as a valid
basis for the estimated value of the confiscated pieces of lumber for purposes of computing the
proper penalty to be imposed on the appellant considering that it is hearsay and it was not formally
offered in evidence contrary to Section 34 of Rule 132 of the Revised Rules of Court.
In the case of People vs. Elizaga, [27] the accused-appellant therein was convicted of the crimes of
homicide and theft, and the value of the bag and its contents that were taken by the accused-
appellant from the victim was estimated by the prosecution witness to be P500.00. In the absence of
a conclusive or definite proof relative to their value, this Court fixed the value of the bag and its
contents at P100.00 based on the attendant circumstances of the case. More pertinently, in the case
of People vs. Reyes, [28] this Court held that if there is no available evidence to prove the value of the
stolen property or that the prosecution failed to prove it, the corresponding penalty to be imposed on
the accused-appellant should be the minimum penalty corresponding to theft involving the value of
P5.00.
In the case at bench, the confiscated fifty-one (51) pieces of assorted Dita and Antipolo lumber
were classified by the CENRO officials as soft, and therefore not premium quality lumber.It may also
be noted that the said pieces of lumber were cut by the appellant, a mere janitor in a public hospital,
from the land owned by his mother, not for commercial purposes but to be utilized in the renovation of
his house. It does not appear that appellant Telen had been convicted nor was he an accused in any
other pending criminal case involving violation of any of the provisions of the Revised Forestry Code
(P.D. No. 705, as amended). In view of the attendant circumstances of this case, and in the interest of
justice, the basis for the penalty to be imposed on the appellant should be the minimum amount
under Article 309 paragraph (6) of the Revised Penal Code which carries the penalty of arresto
mayor in its minimum and medium periods for simple theft.
Considering that the crime of violation of Section 68 of Presidential Decree No. 705, as amended,
is punished as qualified theft under Article 310 of the Revised Penal Code, pursuant to the said
decree, the imposable penalty on the appellant shall be increased by two degrees, that is,
from arresto mayor in its minimum and medium periods to prision mayor in its minimum and medium
periods.[29] Applying the Indeterminate Sentence Law,[30] the penalty to be imposed on the appellant
should be six (6) months and one (1) day of prision correccional to six (6) years and one (1) day
of prision mayor.
WHEREFORE, the decision of the Regional Trial Court of Maasin, Southern Leyte, Branch 25, in
Criminal Case No. 1733 is AFFIRMED with the MODIFICATION that appellant Pastor Telen is
sentenced to six (6) months and one (1) day of prision correccional, as minimum, to six (6) years and
one (1) day of prision mayor, as maximum.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.
G.R. No. 79538 October 18, 1990

FELIPE YSMAEL, JR. & CO., INC., petitioner,


vs.
THE DEPUTY EXECUTIVE SECRETARY, THE SECRETARY OF ENVIRONMENT AND NATURAL RESOURCES,
THE DIRECTOR OF THE BUREAU OF FOREST DEVELOPMENT and TWIN PEAKS DEVELOPMENT AND
REALTY CORPORATION, respondents.

Taada, Vivo & Tan for petitioner.

Antonio E. Escober and Jurado Law Office for respondent Twin Peaks Development Corporation.

COURTS, J.:

Soon after the change of government in February 1986, petitioner sent a letter dated March 17, 1986 to the Office of
the President, and another letter dated April 2, 1986 to Minister Ernesto Maceda of the Ministry of Natural
Resources [MNR], seeking: (1) the reinstatement of its timber license agreement which was cancelled in August
1983 during the Marcos administration; (2) the revocation of TLA No. 356 which was issued to Twin Peaks
Development and Realty Corporation without public bidding and in violation of forestry laws, rules and regulations;
and, (3) the issuance of an order allowing petitioner to take possession of all logs found in the concession area
[Annexes "6" and "7" of the Petition; Rollo, pp. 54-63].

Petitioner made the following allegations:

(a) That on October 12, 1965, it entered into a timber license agreement designated as TLA No. 87 with the
Department of Agriculture and Natural Resources, represented by then Secretary Jose Feliciano, wherein it was
issued an exclusive license to cut, collect and remove timber except prohibited species within a specified portion of
public forest land with an area of 54,920 hectares located in the municipality of Maddela, province of Nueva
Vizcaya * from October 12, 1965 until June 30, 1990;

(b) That on August 18, 1983, the Director of the Bureau of Forest Development [hereinafter referred to as "Bureau"],
Director Edmundo Cortes, issued a memorandum order stopping all logging operations in Nueva Vizcaya and
Quirino provinces, and cancelling the logging concession of petitioner and nine other forest concessionaires,
pursuant to presidential instructions and a memorandum order of the Minister of Natural Resources Teodoro Pena
[Annex "5" of the Petition; Rollo, p. 49];

(c) that on August 25, 1983, petitioner received a telegram from the Bureau, the contents of which were as follows:

PURSUANT TO THE INSTRUCTIONS OF THE PRESIDENT YOU ARE REQUESTED TO STOP


ALL LOGGING OPERATIONS TO CONSERVE REMAINING FORESTS PLEASE CONDUCT THE
ORDERLY PULL-OUT OF LOGGING MACHINERIES AND EQUIPMENT AND COORDINATE WITH
THE RESPECTIVE DISTRICT FORESTERS FOR THE INVENTORY OF LOGS CUT PRIOR TO
THIS ORDER THE SUBMISSION OF A COMPLIANCE REPORT WITHIN THIRTY DAYS SHALL BE
APPRECIATED [Annex "4" of the Petition; Rollo, p. 48];

(d) That after the cancellation of its timber license agreement, it immediately sent a letter addressed to then
President Ferdinand Marcos which sought reconsideration of the Bureau's directive, citing in support thereof its
contributions to alleging that it was not given the forest conservation and opportunity to be heard prior to the
cancellation of its logging 531, but no operations (Annex "6" of the Petition; Rollo, pp. 50 favorable action was taken
on this letter;

(e) That barely one year thereafter, approximately one-half or 26,000 hectares of the area formerly covered by TLA
No. 87 was re-awarded to Twin Peaks Development and Reality Corporation under TLA No. 356 which was set to
expire on July 31, 2009, while the other half was allowed to be logged by Filipinas Loggers, Inc. without the benefit
of a formal award or license; and,

(f) That the latter entities were controlled or owned by relatives or cronies of deposed President Ferdinand Marcos.
Acting on petitioner's letter, the MNR through then Minister Ernesto Maceda issued an order dated July 22, 1986
denying petitioner's request. The Ministry ruled that a timber license was not a contract within the due process
clause of the Constitution, but only a privilege which could be withdrawn whenever public interest or welfare so
demands, and that petitioner was not discriminated against in view of the fact that it was among ten concessionaires
whose licenses were revoked in 1983. Moreover, emphasis was made of the total ban of logging operations in the
provinces of Nueva Ecija, Nueva Vizcaya, Quirino and Ifugao imposed on April 2, 1986, thus:

xxx xxx xxx

It should be recalled that [petitioner's] earlier request for reinstatement has been denied in view of
the total ban of all logging operations in the provinces of Nueva Ecija, Nueva Vizcaya, Quirino and
Ifugao which was imposed for reasons of conservation and national security.
The Ministry imposed the ban because it realizes the great responsibility it bear [sic] in respect to
forest t considers itself the trustee thereof. This being the case, it has to ensure the availability of
forest resources not only for the present, but also for the future generations of Filipinos.

On the other hand, the activities of the insurgents in these parts of the country are well documented.
Their financial demands on logging concessionaires are well known. The government, therefore, is
well within its right to deprive its enemy of sources of funds in order to preserve itself, its established
institutions and the liberty and democratic way of life of its people.

xxx xxx xxx

[Annex "9" of the Petition, pp. 2-4; Rollo, pp. 65-67.]

Petitioner moved for reconsideration of the aforestated order reiterating, among others. its request that TLA No. 356
issued to private respondent be declared null and void. The MNR however denied this motion in an order dated
September 15, 1986. stating in part:

xxx xxx xxx

Regarding [petitioner's] request that the award of a 26,000 hectare portion of TLA No. 87 to Twin
Peaks Realty Development Corporation under TLA No. 356 be declared null and void, suffice it to
say that the Ministry is now in the process of reviewing all contracts, permits or other form of
privileges for the exploration, development, exploitation, or utilization of natural resources entered
into, granted, issued or acquired before the issuance of Proclamation No. 3, otherwise known as the
Freedom Constitution for the purpose of amending, modifying or revoking them when the national
interest so requires.

xxx xxx xxx

The Ministry, through the Bureau of Forest Development, has jurisdiction and authority over all forest
lands. On the basis of this authority, the Ministry issued the order banning all logging
operations/activities in Quirino province, among others, where movant's former concession area is
located. Therefore, the issuance of an order disallowing any person or entity from removing cut or
uncut logs from the portion of TLA No. 87, now under TLA No. 356, would constitute an unnecessary
or superfluous act on the part of the Ministry.

xxx xxx xxx

[Annex "11" of the Petition, pp. 3-4; Rollo, pp. 77-78.]

On November 26, 1986, petitioner's supplemental motion for reconsideration was likewise denied. Meanwhile, per
MNR Administrative Order No. 54, series of 1986, issued on November 26, 1986, the logging ban in the province of
Quirino was lifted.

Petitioner subsequently appealed from the orders of the MNR to the Office of the President. In a resolution dated
July 6, 1987, the Office of the President, acting through then Deputy Executive Secretary Catalino Macaraig, denied
petitioner's appeal for lack of merit. The Office of the President ruled that the appeal of petitioner was prematurely
filed, the matter not having been terminated in the MNR. Petitioner's motion for reconsideration was denied on
August 14, 1987.

Hence, petitioner filed directly with this Court a petition for certiorari, with prayer for the issuance of a restraining
order or writ of preliminary injunction, on August 27, 1987. On October 13, 1987, it filed a supplement to its petition
for certiorari. Thereafter, public and private respondents submitted their respective comments, and petitioner filed its
consolidated reply thereto. In a resolution dated May 22, 1989, the Court resolved to give due course to the petition.
After a careful study of the circumstances in the case at bar, the Court finds several factors which militate against
the issuance of a writ of certiorari in favor of petitioner.

1. Firstly, the refusal of public respondents herein to reverse final and executory administrative orders does not
constitute grave abuse of discretion amounting to lack or excess of jurisdiction.

It is an established doctrine in this jurisdiction that the decisions and orders of administrative agencies have upon
their finality, the force and binding effect of a final judgment within the purview of the doctrine of res judicata. These
decisions and orders are as conclusive upon the rights of the affected parties as though the same had been
rendered by a court of general jurisdiction. The rule of res judicata thus forbids the reopening of a matter once
determined by competent authority acting within their exclusive jurisdiction [See Brillantes v. Castro, 99 Phil. 497
(1956); Ipekdjian Merchandising Co., Inc. v. Court of Tax Appeals, G.R. No. L-15430, September 30, 1963, 9 SCRA
72; San Luis v. Court of Appeals, G.R. No. 80160, June 26, 1989].

In the case at bar, petitioner's letters to the Office of the President and the MNR [now the Department of
Environment and Natural Resources (DENR) dated March 17, 1986 and April 2, 1986, respectively, sought the
reconsideration of a memorandum order issued by the Bureau of Forest Development which cancelled its timber
license agreement in 1983, as well as the revocation of TLA No. 356 subsequently issued by the Bureau to private
respondents in 1984.

But as gleaned from the record, petitioner did not avail of its remedies under the law, i.e. Section 8 of Pres. Dec. No.
705 as amended, for attacking the validity of these administrative actions until after 1986. By the time petitioner sent
its letter dated April 2, 1986 to the newly appointed Minister of the MNR requesting reconsideration of the above
Bureau actions, these were already settled matters as far as petitioner was concerned [See Rueda v. Court of
Agrarian Relations, 106 Phil. 300 (1959); Danan v. Aspillera G.R. No. L-17305, November 28, 1962, 6 SCRA 609;
Ocampo v. Arboleda G.R. No. L-48190, August 31, 1987, 153 SCRA 374].

No particular significance can be attached to petitioner's letter dated September 19, 1983 which petitioner claimed
to have sent to then President Marcos [Annex "6" of Petition, Rollo, pp. 50-53], seeking the reconsideration of the
1983 order issued by Director Cortes of the Bureau. It must be pointed out that the averments in this letter are
entirely different from the charges of fraud against officials under the previous regime made by petitioner in its letters
to public respondents herein. In the letter to then President Marcos, petitioner simply contested its inclusion in the
list of concessionaires, whose licenses were cancelled, by defending its record of selective logging and reforestation
practices in the subject concession area. Yet, no other administrative steps appear to have been taken by petitioner
until 1986, despite the fact that the alleged fraudulent scheme became apparent in 1984 as evidenced by the
awarding of the subject timber concession area to other entities in that year.

2. Moreover, petitioner is precluded from availing of the benefits of a writ of certiorari in the present case because he
failed to file his petition within a reasonable period.

The principal issue ostensibly presented for resolution in the instant petition is whether or not public respondents
herein acted with grave abuse of discretion amounting to lack or excess of jurisdiction in refusing to overturn
administrative orders issued by their predecessors in the past regime. Yet, what the petition ultimately seeks is the
nullification of the Bureau orders cancelling TLA No. 87 and granting TLA No. 356 to private respondent, which were
issued way back in 1983 and 1984, respectively.

Once again, the fact that petitioner failed to seasonably take judicial recourse to have the earlier administrative
actions reviewed by the courts through a petition for certiorari is prejudicial to its cause. For although no specific
time frame is fixed for the institution of a special civil action for certiorari under Rule 65 of the Revised Rules of
Court, the same must nevertheless be done within a "reasonable time". The yardstick to measure the timeliness of a
petition for certiorari is the "reasonableness of the length of time that had expired from the commission of the acts
complained of up to the institution of the proceeding to annul the same" [Toledo v. Pardo, G.R. No. 56761,
November 19, 1982, 118 SCRA 566, 571]. And failure to file the petition for certiorari within a reasonable period of
time renders the petitioner susceptible to the adverse legal consequences of laches [Municipality of Carcar v. Court
of First Instance of Cebu, G.R. No. L-31628, December 27, 1982, 119 SCRA 392).
Laches is defined as the failure or neglect for an unreasonable and unexplained length of time to do that which by
exercising due diligence, could or should have been done earlier, or to assert a right within a reasonable time,
warranting a presumption that the party entitled thereto has either abandoned it or declined to assert it [Tijam v.
Sibonghanoy, G.R. No. L-21450, April 15, 1968, 23 SCRA 29; Seno v. Mangubat, G.R. No. L-44339, December 2,
1987, 156 SCRA 113]. The rule is that unreasonable delay on the part of a plaintiff in seeking to enforce an alleged
right may, depending upon the circumstances, be destructive of the right itself. Verily, the laws aid those who are
vigilant, not those who sleep upon their rights (Vigilantibus et non dormientibus jura subveniunt) [See Buenaventura
v. David, 37 Phil. 435 (1918)].

In the case at bar, petitioner waited for at least three years before it finally filed a petition for certiorari with the Court
attacking the validity of the assailed Bureau actions in 1983 and 1984. Considering that petitioner, throughout the
period of its inaction, was not deprived of the opportunity to seek relief from the courts which were normally
operating at the time, its delay constitutes unreasonable and inexcusable neglect, tantamount to laches.
Accordingly, the writ of certiorari requiring the reversal of these orders will not lie.

3. Finally, there is a more significant factor which bars the issuance of a writ of certiorari in favor of petitioner and
against public respondents herein. It is precisely this for which prevents the Court from departing from the general
application of the rules enunciated above.

A cursory reading of the assailed orders issued by public respondent Minister Maceda of the MNR which were ed by
the Office of the President, will disclose public policy consideration which effectively forestall judicial interference in
the case at bar,

Public respondents herein, upon whose shoulders rests the task of implementing the policy to develop and conserve
the country's natural resources, have indicated an ongoing department evaluation of all timber license agreements
entered into, and permits or licenses issued, under the previous dispensation. In fact, both the executive and
legislative departments of the incumbent administration are presently taking stock of its environmental policies with
regard to the utilization of timber lands and developing an agenda for future programs for their conservation and
rehabilitation.

The ongoing administrative reassessment is apparently in response to the renewed and growing global concern
over the despoliation of forest lands and the utter disregard of their crucial role in sustaining a balanced ecological
system. The legitimacy of such concern can hardly be disputed, most especially in this country. The Court takes
judicial notice of the profligate waste of the country's forest resources which has not only resulted in the irreversible
loss of flora and fauna peculiar to the region, but has produced even more disastrous and lasting economic and
social effects. The delicate balance of nature having been upset, a vicious cycle of floods and droughts has been
triggered and the supply of food and energy resources required by the people seriously depleted.

While there is a desire to harness natural resources to amass profit and to meet the country's immediate financial
requirements, the more essential need to ensure future generations of Filipinos of their survival in a viable
environment demands effective and circumspect action from the government to check further denudation of
whatever remains of the forest lands. Nothing less is expected of the government, in view of the clear constitutional
command to maintain a balanced and healthful ecology. Section 16 of Article II of the 1987 Constitution provides:

SEC. 16. The State shall protect and promote the right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of nature.

Thus, while the administration grapples with the complex and multifarious problems caused by unbridled exploitation
of these resources, the judiciary will stand clear. A long line of cases establish the basic rule that the courts will not
interfere in matters which are addressed to the sound discretion of government agencies entrusted with the
regulation of activities coming under the special technical knowledge and training of such agencies [See Espinosa v.
Makalintal, 79 Phil. 134 (1947); Coloso v. Board of Accountancy, 92 Phil. 938 (1953); Pajo v. Ago, 108 Phil. 905
(1960); Suarez v. Reyes, G.R. No. L-19828, February 28, 1963, 7 SCRA 461; Ganitano v. Secretary of Agriculture
and Natural Resources, G. R. No. L-21167, March 31, 1966, 16 SCRA 543; Villegas v. Auditor General, G.R. No. L-
21352, November 29, 1966, 18 SCRA 877; Manuel v. Villena, G.R. No. L-28218, February 27, 1971, 37 SCRA 745;
Lacuesta v. Herrera, G.R. No. L-33646, January 28, 1975, 62 SCRA 115; Lianga Bay Logging Co., Inc. v. Enage,
G.R. No. L-30637, July 16, 1987, 152 SCRA 80]. More so where, as in the present case, the interests of a private
logging company are pitted against that of the public at large on the pressing public policy issue of forest
conservation. For this Court recognizes the wide latitude of discretion possessed by the government in determining
the appropriate actions to be taken to preserve and manage natural resources, and the proper parties who should
enjoy the privilege of utilizing these resources [Director of Forestry v. Munoz, G.R. No. L-24796, June 28, 1968, 23
SCRA 1183; Lim, Sr. v. The Secretary of Agriculture and Natural Resources, G.R. No. L-26990, August 31, 1970, 34
SCRA 751]. Timber licenses, permits and license agreements are the principal instruments by which the State
regulates the utilization and disposition of forest resources to the end that public welfare is promoted. And it can
hardly be gainsaid that they merely evidence a privilege granted by the State to qualified entities, and do not vest in
the latter a permanent or irrevocable right to the particular concession area and the forest products therein. They
may be validly amended, modified, replaced or rescinded by the Chief Executive when national interests so require.
Thus, they are not deemed contracts within the purview of the due process of law clause [See Sections 3 (ee) and
20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry, G.R. No. L-24548, October 27, 1983, 125
SCRA 302].

In fine, the legal precepts highlighted in the foregoing discussion more than suffice to justify the Court's refusal to
interfere in the DENR evaluation of timber licenses and permits issued under the previous regime, or to pre-empt
the adoption of appropriate corrective measures by the department.

Nevertheless, the Court cannot help but express its concern regarding alleged irregularities in the issuance of timber
license agreements to a number of logging concessionaires.

The grant of licenses or permits to exploit the country's timber resources, if done in contravention of the procedure
outlined in the law, or as a result of fraud and undue influence exerted on department officials, is indicative of an
arbitrary and whimsical exercise of the State's power to regulate the use and exploitation of forest resources. The
alleged practice of bestowing "special favors" to preferred individuals, regardless of merit, would be an abuse of this
power. And this Court will not be a party to a flagrant mockery of the avowed public policy of conservation enshrined
in the 1987 Constitution. Therefore, should the appropriate case be brought showing a clear grave abuse of
discretion on the part of officials in the DENR and related bureaus with respect to the implementation of this public
policy, the Court win not hesitate to step in and wield its authority, when invoked, in the exercise of judicial powers
under the Constitution [Section 1, Article VIII].

However, petitioner having failed to make out a case showing grave abuse of discretion on the part of public
respondents herein, the Court finds no basis to issue a writ of certiorari and to grant any of the affirmative reliefs
sought.

WHEREFORE, the present petition is DISMISSED.

SO ORDERED.

Fernan, C.J., Gutierrez Jr. and Bidin, JJ., concur.

Feliciano, J., is on leave.

Footnotes

* As a result of the creation of the province of Quirino the municipality of Maddela is now deemed
part of the Quirino province.

G.R. No. 98332 January 16, 1995

MINERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner,


vs.
HON. FULGENCIO S. FACTORAN, JR., Secretary of Environment and Natural Resources, and JOEL D.
MUYCO, Director of Mines and Geosciences Bureau, respondents.

ROMERO, J.:

The instant petition seeks a ruling from this Court on the validity of two Administrative Orders issued by the
Secretary of the Department of Environment and Natural Resources to carry out the provisions of certain Executive
Orders promulgated by the President in the lawful exercise of legislative powers.

Herein controversy was precipitated by the change introduced by Article XII, Section 2 of the 1987 Constitution on
the system of exploration, development and utilization of the country's natural resources. No longer is the utilization
of inalienable lands of public domain through "license, concession or lease" under the 1935 and 1973
Constitutions 1 allowed under the 1987 Constitution.

The adoption of the concept of jura regalia 2 that all natural resources are owned by the State embodied in the 1935,
1973 and 1987 Constitutions, as well as the recognition of the importance of the country's natural resources, not only for
national economic development, but also for its security and national
defense, 3 ushered in the adoption of the constitutional policy of "full control and supervision by the State" in the
exploration, development and utilization of the country's natural resources. The options open to the State are through
direct undertaking or by entering into co-production, joint venture; or production-sharing agreements, or by entering into
agreement with foreign-owned corporations for large-scale exploration, development and utilization.

Article XII, Section 2 of the 1987 Constitution provides:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture, or product-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned
by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and under such terms and conditions as may be provided by
law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.

xxx xxx xxx

The President may enter into agreements with foreign-owned corporations involving either technical
or financial assistance for large-scale exploration, development, and utilization of minerals,
petroleum, and other mineral oils according to the general terms and conditions provided by law,
based on real contributions to the economic growth and general welfare of the country. In such
agreements, the State shall promote the development and use of local scientific and technical
resources.

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

Pursuant to the mandate of the above-quoted provision, legislative acts 4 were successively issued by the President in
the exercise of her legislative
power. 5
To implement said legislative acts, the Secretary of the Department of Environment and Natural Resources (DENR)
in turn promulgated Administrative Order Nos. 57 and 82, the validity and constitutionality of which are being
challenged in this petition.

On July 10, 1987, President Corazon C. Aquino, in the exercise of her then legislative powers under Article II,
Section 1 of the Provisional Constitution and Article XIII, Section 6 of the 1987 Constitution, promulgated Executive
Order No. 211 prescribing the interim procedures in the processing and approval of applications for the exploration,
development and utilization of minerals pursuant to the 1987 Constitution in order to ensure the continuity of mining
operations and activities and to hasten the development of mineral resources. The pertinent provisions read as
follows:

Sec. 1. Existing mining permits, licenses, leases and other mining grants issued by the Department
of Environment and Natural Resources and Bureau of Mines and Geo-Sciences, including existing
operating agreements and mining service contracts, shall continue and remain in full force and
effect, subject to the same terms and conditions as originally granted and/or approved.

Sec. 2. Applications for the exploration, development and utilization of mineral resources, including
renewal applications for approval of operating agreements and mining service contracts, shall be
accepted and processed and may be approved; concomitantly thereto, declarations of locations and
all other kinds of mining applications shall be accepted and registered by the Bureau of Mines and
Geo-Sciences.

Sec. 3. The processing, evaluation and approval of all mining applications, declarations of locations,
operating agreements and service contracts as provided for in Section 2 above, shall be governed
by Presidential Decree No. 463, as amended, other existing mining laws and their implementing
rules and regulations: Provided, however, that the privileges granted, as well as the terms and
conditions thereof shall be subject to any and all modifications or alterations which Congress may
adopt pursuant to Section 2, Article XII of the 1987 Constitution.

On July 25, 1987, President Aquino likewise promulgated Executive Order No. 279 authorizing the DENR Secretary
to negotiate and conclude joint venture, co-production, or production-sharing agreements for the exploration,
development and utilization of mineral resources, and prescribing the guidelines for such agreements and those
agreements involving technical or financial assistance by foreign-owned corporations for large-scale exploration,
development, and utilization of minerals. The pertinent provisions relevant to this petition are as follows:

Sec. 1. The Secretary of the Department of Environment and Natural Resources (hereinafter
referred to as "the Secretary") is hereby authorized to negotiate and enter into, for and in behalf of
the Government, joint venture, co-production, or production-sharing agreements for the exploration,
development, and utilization of mineral resources with any Filipino citizens, or corporation or
association at least sixty percent (60%) of whose capital is owned by Filipino citizens. Such joint
venture, co-production, or production-sharing agreements may be for a period not exceeding twenty-
five years, renewable for not more than twenty-five years, and shall include the minimum terms and
conditions prescribed in Section 2 hereof. In the execution of a joint venture, co-production or
production agreements, the contracting parties, including the Government, may consolidate two or
more contiguous or geologically related mining claims or leases and consider them as one
contract area for purposes of determining the subject of the joint venture, co-production, or
production-sharing agreement.

xxx xxx xxx

Sec. 6. The Secretary shall promulgate such supplementary rules and regulations as may be
necessary to effectively implement the provisions of this Executive Order.
Sec. 7. All provisions of Presidential Decree No. 463, as amended, other existing mining laws, and
their implementing rules and regulations, or parts thereof, which are not inconsistent with the
provisions of this Executive Order, shall continue in force and effect.

Pursuant to Section 6 of Executive Order No. 279, the DENR Secretary issued on June 23, 1989 DENR
Administrative Order No. 57, series of 1989, captioned "Guidelines of Mineral Production Sharing Agreement under
Executive Order No. 279." 6 Under the transitory provision of said DENR Administrative Order No. 57, embodied in its
Article 9, all existing mining leases or agreements which were granted after the effectivity of the 1987 Constitution
pursuant to Executive Order No. 211, except small scale mining leases and those pertaining to sand and gravel and
quarry resources covering an area of twenty (20) hectares or less, shall be converted into production-sharing agreements
within one (1) year from the effectivity of these guidelines.

On November 20, 1980, the Secretary of the DENR Administrative Order No. 82, series of 1990, laying down the
"Procedural Guidelines on the Award of Mineral Production Sharing Agreement (MPSA) through Negotiation." 7

Section 3 of the aforementioned DENR Administrative Order No. 82 enumerates the persons or entities required to
submit Letter of Intent (LOIs) and Mineral Production Sharing Agreement (MPSAs) within two (2) years from the
effectivity of DENR Administrative Order No. 57 or until July 17, 1991. Failure to do so within the prescribed period
shall cause the abandonment of mining, quarry and sand and gravel claims. Section 3 of DENR Administrative
Order No. 82 provides:

Sec. 3. Submission of Letter of Intent (LOIs) and MPSAs). The following shall submit their LOIs and
MPSAs within two (2) years from the effectivity of DENR A.O. 57 or until July 17, 1991.

i. Declaration of Location (DOL) holders, mining lease applicants, exploration permitees, quarry
applicants and other mining applicants whose mining/quarry applications have not been perfected
prior to the effectivity of DENR Administrative Order No. 57.

ii. All holders of DOL acquired after the effectivity of DENR A.O. No. 57.

iii. Holders of mining leases or similar agreements which were granted after (the) effectivity of 1987
Constitution.

Failure to submit letters of intent and MPSA applications/proposals within the prescribed period shall
cause the abandonment of mining, quarry and sand and gravel claims.

The issuance and the impeding implementation by the DENR of Administrative Order Nos. 57 and 82 after their
respective effectivity dates compelled the Miners Association of the Philippines, Inc. 8 to file the instant petition
assailing their validity and constitutionality before this Court.

In this petition for certiorari, petitioner Miners Association of the Philippines, Inc. mainly contends that respondent
Secretary of DENR issued both Administrative Order Nos. 57 and 82 in excess of his rule-making power under
Section 6 of Executive Order No. 279. On the assumption that the questioned administrative orders do not conform
with Executive Order Nos. 211 and 279, petitioner contends that both orders violate the
non-impairment of contract provision under Article III, Section 10 of the 1987 Constitution on the ground that
Administrative Order No. 57 unduly pre-terminates existing mining agreements and automatically converts them into
production-sharing agreements within one (1) year from its effectivity date. On the other hand, Administrative Order
No. 82 declares that failure to submit Letters of Intent and Mineral Production-Sharing Agreements within two (2)
years from the date of effectivity of said guideline or on July 17, 1991 shall cause the abandonment of their mining,
quarry and sand gravel permits.

On July 2, 1991, the Court, acting on petitioner's urgent ex-parte petition for issuance of a restraining
order/preliminary injunction, issued a Temporary Restraining Order, upon posting of a P500,000.00 bond, enjoining
the enforcement and implementation of DENR Administrative Order Nos. 57 and 82, as amended, Series of 1989
and 1990, respectively. 9
On November 13, 1991, Continental Marble Corporation, 10 thru its President, Felipe A. David, sought to intervene 11in
this case alleging that because of the temporary order issued by the Court , the DENR, Regional Office No. 3 in San
Fernando, Pampanga refused to renew its Mines Temporary Permit after it expired on July 31, 1991. Claiming that its
rights and interests are prejudicially affected by the implementation of DENR Administrative Order Nos. 57 and 82, it
joined petitioner herein in seeking to annul Administrative Order Nos. 57 and 82 and prayed that the DENR, Regional
Office No. 3 be ordered to issue a Mines Temporary Permit in its favor to enable it to operate during the pendency of the
suit.

Public respondents were acquired to comment on the Continental Marble Corporation's petition for intervention in
the resolution of November 28, 1991. 12

Now to the main petition. If its argued that Administrative Order Nos. 57 and 82 have the effect of repealing or
abrogating existing mining laws 13 which are not inconsistent with the provisions of Executive Order No. 279. Invoking
Section 7 of said Executive Order No. 279, 14 petitioner maintains that respondent DENR Secretary cannot provide
guidelines such as Administrative Order Nos. 57 and 82 which are inconsistent with the provisions of Executive Order No.
279 because both Executive Order Nos. 211 and 279 merely reiterated the acceptance and registration of declarations of
location and all other kinds of mining applications by the Bureau of Mines and Geo-Sciences under the provisions of
Presidential Decree No. 463, as amended, until Congress opts to modify or alter the same.

In other words, petitioner would have us rule that DENR Administrative Order Nos. 57 and 82 issued by the DENR
Secretary in the exercise of his rule-making power are tainted with invalidity inasmuch as both contravene or
subvert the provisions of Executive Order Nos. 211 and 279 or embrace matters not covered, nor intended to be
covered, by the aforesaid laws.

We disagree.

We reiterate the principle that the power of administrative officials to promulgate rules and regulations in the
implementation of a statute is necessarily limited only to carrying into effect what is provided in the legislative
enactment. The principle was enunciated as early as 1908 in the case of United States v. Barrias. 15 The scope of the
exercise of such rule-making power was clearly expressed in the case of United States v. Tupasi Molina, 16 decided in
1914, thus: "Of course, the regulations adopted under legislative authority by a particular department must be in harmony
with the provisions of the law, and for the sole purpose of carrying into effect its general provisions. By such regulations, of
course, the law itself can not be extended. So long, however, as the regulations relate solely to carrying into effect its
general provisions. By such regulations, of course, the law itself can not be extended. So long, however, as the
regulations relate solely to carrying into effect the provision of the law, they are valid."

Recently, the case of People v. Maceren 17 gave a brief delienation of the scope of said power of administrative officials:

Administrative regulations adopted under legislative authority by a particular department must be in


harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its
general provision. By such regulations, of course, the law itself cannot be extended (U.S. v. Tupasi
Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs. Estenzo,
109 Phil. 419, 422; Teoxon vs. Members of the Board of Administrators, L-25619, June 30, 1970, 33
SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA 660; Deluao
v. Casteel, L-21906, August 29, 1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating the mode or proceeding to carry
into effect the law as it has been enacted. The power cannot be extended to amending or expanding
the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the
statute cannot be sanctioned (University of Santo Tomas v. Board of Tax Appeals, 93 Phil. 376, 382,
citing 12 C.J. 845-46. As to invalid regulations, see Collector of Internal Revenue v. Villaflor, 69 Phil.
319; Wise & Co. v. Meer, 78 Phil. 655, 676; Del Mar v. Phil. Veterans Administration, L-27299, June
27, 1973, 51 SCRA 340, 349).

xxx xxx xxx


. . . The rule or regulation should be within the scope of the statutory authority granted by the
legislature to the administrative agency (Davis, Administrative Law, p. 194, 197, cited in Victorias
Milling Co., Inc. v. Social Security Commission, 114 Phil. 555, 558).

In case of discrepancy between the basic law and a rule or regulation issued to implement said law,
the basic prevails because said rule or regulations cannot go beyond the terms and provisions of the
basic law (People v. Lim, 108 Phil. 1091).

Considering that administrative rules draw life from the statute which they seek to implement, it is obvious that the
spring cannot rise higher than its source. We now examine petitioner's argument that DENR Administrative Order
Nos. 57 and 82 contravene Executive Order Nos. 211 and 279 as both operate to repeal or abrogate Presidential
Decree No. 463, as amended, and other mining laws allegedly acknowledged as the principal law under Executive
Order Nos. 211 and 279.

Petitioner's insistence on the application of Presidential Decree No. 463, as amended, as the governing law on the
acceptance and approval of declarations of location and all other kinds of applications for the exploration,
development, and utilization of mineral resources pursuant to Executive Order No. 211, is erroneous. Presidential
Decree No. 463, as amended, pertains to the old system of exploration, development and utilization of natural
resources through "license, concession or lease" which, however, has been disallowed by Article XII, Section 2 of
the 1987 Constitution. By virtue of the said constitutional mandate and its implementing law, Executive Order No.
279 which superseded Executive Order No. 211, the provisions dealing on "license, concession or lease" of mineral
resources under Presidential Decree No. 463, as amended, and other existing mining laws are deemed repealed
and, therefore, ceased to operate as the governing law. In other words, in all other areas of administration and
management of mineral lands, the provisions of Presidential Decree No. 463, as amended, and other existing
mining laws, still govern. Section 7 of Executive Order No. 279 provides, thus:

Sec. 7. All provisions of Presidential Decree No. 463, as amended, other existing mining laws, and
their implementing rules and regulations, or parts thereof, which are not inconsistent with the
provisions of this Executive Order, shall continue in force and effect.

Specifically, the provisions of Presidential Decree No. 463, as amended, on lease of mining claims under Chapter
VIII, quarry permits on privately-owned lands of quarry license on public lands under Chapter XIII and other related
provisions on lease, license and permits are not only inconsistent with the raison d'etre for which Executive Order
No. 279 was passed, but contravene the express mandate of Article XII, Section 2 of the 1987 Constitution. It force
and effectivity is thus foreclosed.

Upon the effectivity of the 1987 Constitution on February 2, 1987, 18 the State assumed a more dynamic role in the
exploration, development and utilization of the natural resources of the country. Article XII, Section 2 of the said Charter
explicitly ordains that the exploration, development and utilization of natural resources shall be under the full control and
supervision of the State. Consonant therewith, the exploration, development and utilization of natural resources may be
undertaken by means of direct act of the State, or it may opt to enter into co-production, joint venture, or production-
sharing agreements, or it may enter into agreements with foreign-owned corporations involving either technical or financial
assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country.

Given these considerations, there is no clear showing that respondent DENR Secretary has transcended the
bounds demarcated by Executive Order No. 279 for the exercise of his rule-making power tantamount to a grave
abuse of discretion. Section 6 of Executive Order No. 279 specifically authorizes said official to promulgate such
supplementary rules and regulations as may be necessary to effectively implement the provisions thereof. Moreover,
the subject sought to be governed and regulated by the questioned orders is germane to the objects and purposes
of Executive Order No. 279 specifically issued to carry out the mandate of Article XII, Section 2 of the 1987
Constitution.
Petitioner likewise maintains that Administrative Order No. 57, in relation to Administrative Order No. 82, impairs
vested rights as to violate the non-impairment of contract doctrine guaranteed under Article III, Section 10 of the
1987 Constitution because Article 9 of Administrative Order No. 57 unduly pre-terminates and automatically
converts mining leases and other mining agreements into production-sharing agreements within one (1) year from
effectivity of said guideline, while Section 3 of Administrative Order No. 82, declares that failure to submit Letters of
Intent (LOIs) and MPSAs within two (2) years from the effectivity of Administrative Order No. 57 or until July 17,
1991 shall cause the abandonment of mining, quarry, and sand gravel permits.

In Support of the above contention, it is argued by petitioner that Executive Order No. 279 does not contemplate
automatic conversion of mining lease agreements into mining production-sharing agreement as provided under
Article 9, Administrative Order No. 57 and/or the consequent abandonment of mining claims for failure to submit
LOIs and MPSAs under Section 3, Administrative Order No. 82 because Section 1 of said Executive Order No. 279
empowers the DENR Secretary to negotiate and enter into voluntary agreements which must set forth the minimum
terms and conditions provided under Section 2 thereof. Moreover, petitioner contends that the power to regulate and
enter into mining agreements does not include the power to preterminate existing mining lease agreements.

To begin with, we dispel the impression created by petitioner's argument that the questioned administrative orders
unduly preterminate existing mining leases in general. A distinction which spells a real difference must be drawn.
Article XII, Section 2 of the 1987 Constitution does not apply retroactively to "license, concession or lease" granted
by the government under the 1973 Constitution or before the effectivity of the 1987 Constitution on February 2,
1987. The intent to apply prospectively said constitutional provision was stressed during the deliberations in the
Constitutional Commission, 19 thus:

MR. DAVIDE: Under the proposal, I notice that except for the [inalienable] lands of
the public domain, all other natural resources cannot be alienated and in respect to
[alienable] lands of the public domain, private corporations with the required
ownership by Filipino citizens can only lease the same. Necessarily, insofar as other
natural resources are concerned, it would only be the State which can exploit,
develop, explore and utilize the same. However, the State may enter into a joint
venture, co-production or production-sharing. Is that not correct?

MR. VILLEGAS: Yes.

MR. DAVIDE: Consequently, henceforth upon, the approval of this Constitution, no


timber or forest concession, permits or authorization can be exclusively granted to
any citizen of the Philippines nor to any corporation qualified to acquire lands of the
public domain?

MR. VILLEGAS: Would Commissioner Monsod like to comment on that? I think his
answer is "yes."

MR. DAVIDE: So, what will happen now license or concessions earlier granted by the
Philippine government to private corporations or to Filipino citizens? Would they be
deemed repealed?

MR. VILLEGAS: This is not applied retroactively. They will be respected.

MR. DAVIDE: In effect, they will be deemed repealed?

MR. VILLEGAS: No. (Emphasis supplied)

During the transition period or after the effectivity of the 1987 Constitution on February 2, 1987 until the first
Congress under said Constitution was convened on July 27, 1987, two (2) successive laws, Executive Order Nos.
211 and 279, were promulgated to govern the processing and approval of applications for the exploration,
development and utilization of minerals. To carry out the purposes of said laws, the questioned Administrative Order
Nos. 57 and 82, now being assailed, were issued by the DENR Secretary.

Article 9 of Administrative Order No. 57 provides:

ARTICLE 9

TRANSITORY PROVISION

9.1. All existing mining leases or agreements which were granted after the effectivity of the 1987
Constitution pursuant to Executive Order No. 211, except small scale mining leases and those
pertaining to sand and gravel and quarry resources covering an area of twenty (20) hectares or less
shall be subject to these guidelines. All such leases or agreements shall be converted into
production sharing agreement within one (1) year from the effectivity of these guidelines. However,
any minimum firm which has established mining rights under Presidential Decree 463 or other laws
may avail of the provisions of EO 279 by following the procedures set down in this document.

It is clear from the aforestated provision that Administrative Order No. 57 applies only to all existing mining leases or
agreements which were granted after the effectivity of the 1987 Constitution pursuant to Executive Order No. 211. It
bears mention that under the text of Executive Order No. 211, there is a reservation clause which provides that the
privileges as well as the terms and conditions of all existing mining leases or agreements granted after the effectivity
of the 1987 Constitution pursuant to Executive Order No. 211, shall be subject to any and all modifications or
alterations which Congress may adopt pursuant to Article XII, Section 2 of the 1987 Constitution. Hence, the
strictures of the
non-impairment of contract clause under Article III, Section 10 of the 1987 Constitution 20 do not apply to the aforesaid
leases or agreements granted after the effectivity of the 1987 Constitution, pursuant to Executive Order No. 211. They can
be amended, modified or altered by a statute passed by Congress to achieve the purposes of Article XII, Section 2 of the
1987 Constitution.

Clearly, Executive Order No. 279 issued on July 25, 1987 by President Corazon C. Aquino in the exercise of her
legislative power has the force and effect of a statute or law passed by Congress. As such, it validly modified or
altered the privileges granted, as well as the terms and conditions of mining leases and agreements under
Executive Order No. 211 after the effectivity of the 1987 Constitution by authorizing the DENR Secretary to
negotiate and conclude joint venture, co-production, or production-sharing agreements for the exploration,
development and utilization of mineral resources and prescribing the guidelines for such agreements and those
agreements involving technical or financial assistance by foreign-owned corporations for large-scale exploration,
development, and utilization of minerals.

Well -settled is the rule, however, that regardless of the reservation clause, mining leases or agreements granted by
the State, such as those granted pursuant to Executive Order No. 211 referred to this petition, are subject to
alterations through a reasonable exercise of the police power of the State. In the 1950 case of Ongsiako v.
Gamboa, 21 where the constitutionality of Republic Act No. 34 changing the 50-50 sharecropping system in existing
agricultural tenancy contracts to 55-45 in favor of tenants was challenged, the Court, upholding the constitutionality of the
law, emphasized the superiority of the police power of the State over the sanctity of this contract:

The prohibition contained in constitutional provisions against: impairing the obligation of contracts is not an absolute
one and it is not to be read with literal exactness like a mathematical formula. Such provisions are restricted to
contracts which respect property, or some object or value, and confer rights which may be asserted in a court of
justice, and have no application to statute relating to public subjects within the domain of the general legislative
powers of the State, and involving the public rights and public welfare of the entire community affected by it. They do
not prevent a proper exercise by the State of its police powers. By enacting regulations reasonably necessary to
secure the health, safety, morals, comfort, or general welfare of the community, even the contracts may thereby be
affected; for such matter can not be placed by contract beyond the power of the State shall regulates and control
them. 22
In Ramas v. CAR and Ramos 23 where the constitutionality of Section 14 of Republic Act No. 1199 authorizing the
tenants to charge from share to leasehold tenancy was challenged on the ground that it impairs the obligation of
contracts, the Court ruled that obligations of contracts must yield to a proper exercise of the police power when such
power is exercised to preserve the security of the State and the means adopted are reasonably adapted to the
accomplishment of that end and are, therefore, not arbitrary or oppressive.

The economic policy on the exploration, development and utilization of the country's natural resources under Article
XII, Section 2 of the 1987 Constitution could not be any clearer. As enunciated in Article XII, Section 1 of the 1987
Constitution, the exploration, development and utilization of natural resources under the new system mandated in
Section 2, is geared towards a more equitable distribution of opportunities, income, and wealth; a sustained
increase in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

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

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

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

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

We now, proceed to the petition-in-intervention. Under Section 2, Rule 12 of the Revised Rules of Court, an
intervention in a case is proper when the intervenor has a "legal interest in the matter in litigation, or in the success
of either of the parties, or an interest against both, or when he is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or of an officer thereof. "Continental Marble
Corporation has not sufficiently shown that it falls under any of the categories mentioned above. The refusal of the
DENR, Regional Office No. 3, San Fernando, Pampanga to renew its Mines Temporary Permit does not justify such
an intervention by Continental Marble Corporation for the purpose of obtaining a directive from this Court for the
issuance of said permit. Whether or not Continental Marble matter best addressed to the appropriate government
body but certainly, not through this Court. Intervention is hereby DENIED.
WHEREFORE, the petition is DISMISSED for lack of merit. The Temporary Restraining Order issued on July 2,
1991 is hereby LIFTED.

SO ORDERED.

Narvasa, C.J., Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Bellosillo, Melo, Quiason, Puno, Vitug, Kapunan and
Mendoza, JJ., concur.

Footnotes

1 Article XIII, Section 1 of the 1935 Constitution provides:

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 corporation or associations at least sixty per centum of the
capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at
the time of the inauguration of the Government established under this Constitution. Natural
resources, with the exception of public agricultural land, shall not be alienated, and no license,
concession, or lease for the exploitation, development, or utilization of any of the natural resources
shall be granted for a period exceeding twenty-five years, renewable for another twenty-five years,
except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which cases beneficial use may be the measure and the limit of the
grant.

xxx xxx xxx

Article XIV, Section 8 of the 1973 Constitution provides:

Section 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.

2 Cario v. Insular Government, 212 US 449 (1909); Valenton v. Mariano, 3 Phil. 537 (1904); Lee
Hung Hok v. David, G.R. No. L-30389, December 27, 1972, 48 SCRA 372, 377.

3 1986 U.P. Law Constitution Project, Vol. I, pp. 8-11.

4 Executive Order No. 211 (July 10, 1987) and Executive Order No. 279 (July 25, 1987).

5 Article II, Section 1, 1987 Provisional Constitution; Article XIII, Section 6, 1987 Constitution; Tan v.
Marquez, G.R. No. 93288, October 25, 1990, Minute Resolution, En Banc.

6 Published in the July 3, 1989 issue of the Philippine Daily Inquirer, a newspaper of general
circulation, and became effective on July 18, 1989.
7 Published in the December 21, 1990 issue of the Philippine Daily Inquirer, a newspaper of general
circulation, and became effective on January 5, 1991.

8 A non-stock and non-profit organization duly formed and existing under and by virtue of the laws of
the Philippines with principal office at Suite 609 Don Santiago Building whose members include
mining prospectors and claimowners or claimholders.

9 Rollo, pp. 46-48.

10 A domestic corporation engaged in the business of marble mining with factory processing plant at
24 General Luis St., Novaliches, Quezon City. It has filed a Declaration of Location dated November
13, 1973 for a placer mine known as "MARGEL" located at Matitic, Norzagaray, Bulacan. It has been
operating as a mining entity and exporting its finished products (marble tiles) by virtue of a Mines
Temporary Permit issued by the DENR.

11 Rollo, pp. 99-104.

12 Rollo, p. 114.

13 Presidential Decree No. 463, as amended, otherwise known as "The Mineral Resources
Development Decree of 1974" promulgated on May 17, 1974.

14 Section 7, Executive Order No. 279 provides:

All provisions of Presidential Decree No. 463, as amended, other existing mining laws, and their
implementing rules and regulations, or parts thereof, which are not inconsistent with the provisions of
this Executive Order, shall continue in force and effect.

15 11 Phil. 327, 330 (1908).

16 29 Phil. 120, 124 (1914).

17 No. L-32166, October 18, 1977, 79 SCRA 450.

18 De Leon v. Esguerra, G.R. No. 78058, August 31, 187, 153 SCRA 602.

19 Record of the Constitutional Commission, Proceedings and Debate, Vol. III, p. 260.

20 Article III, Section 10 of the 1987 Constitutions provides:

No law impairing the obligation of contracts shall be passed.

21 86 Phil. 50 (1950).

22 86 Phil. at 54-55.

23 120 Phil. 168 (1964).


EN BANC

[G.R. No. 127882. December 1, 2004]

LA BUGAL-BLAAN TRIBAL ASSOCIATION, INC., Represented by its Chairman


FLONG MIGUEL M. LUMAYONG; WIGBERTO E. TAADA; PONCIANO
BENNAGEN; JAIME TADEO; RENATO R. CONSTANTINO JR.; FLONG
AGUSTIN M. DABIE; ROBERTO P. AMLOY; RAQIM L. DABIE; SIMEON H.
DOLOJO; IMELDA M. GANDON; LENY B. GUSANAN; MARCELO L. GUSANAN;
QUINTOL A. LABUAYAN; LOMINGGES D. LAWAY; BENITA P. TACUAYAN;
Minors JOLY L. BUGOY, Represented by His Father UNDERO D. BUGOY and
ROGER M. DADING; Represented by His Father ANTONIO L. DADING; ROMY
M. LAGARO, Represented by His Father TOTING A. LAGARO; MIKENY JONG
B. LUMAYONG, Represented by His Father MIGUEL M. LUMAYONG; RENE T.
MIGUEL, Represented by His Mother EDITHA T. MIGUEL; ALDEMAR L. SAL,
Represented by His Father DANNY M. SAL; DAISY RECARSE, Represented by
Her Mother LYDIA S. SANTOS; EDWARD M. EMUY; ALAN P. MAMPARAIR;
MARIO L. MANGCAL; ALDEN S. TUSAN; AMPARO S. YAP; VIRGILIO CULAR;
MARVIC M.V.F. LEONEN; JULIA REGINA CULAR, GIAN CARLO CULAR,
VIRGILIO CULAR JR., Represented by Their Father VIRGILIO CULAR; PAUL
ANTONIO P. VILLAMOR, Represented by His Parents JOSE VILLAMOR and
ELIZABETH PUA-VILLAMOR; ANA GININA R. TALJA, Represented by Her
Father MARIO JOSE B. TALJA; SHARMAINE R. CUNANAN, Represented by
Her Father ALFREDO M. CUNANAN; ANTONIO JOSE A. VITUG III, Represented
by His Mother ANNALIZA A. VITUG, LEAN D. NARVADEZ, Represented by His
Father MANUEL E. NARVADEZ JR.; ROSERIO MARALAG LINGATING,
Represented by Her Father RIO OLIMPIO A. LINGATING; MARIO JOSE B.
TALJA; DAVID E. DE VERA; MARIA MILAGROS L. SAN JOSE; Sr. SUSAN O.
BOLANIO, OND; LOLITA G. DEMONTEVERDE; BENJIE L. NEQUINTO; [1] ROSE
LILIA S. ROMANO; ROBERTO S. VERZOLA; EDUARDO AURELIO C. REYES;
LEAN LOUEL A. PERIA, Represented by His Father ELPIDIO V. PERIA;
[2]
GREEN FORUM PHILIPPINES; GREEN FORUM WESTERN VISAYAS (GF-
WV); ENVIRONMENTAL LEGAL ASSISTANCE CENTER (ELAC); KAISAHAN
TUNGO SA KAUNLARAN NG KANAYUNAN AT REPORMANG PANSAKAHAN
(KAISAHAN);[3] PARTNERSHIP FOR AGRARIAN REFORM and RURAL
DEVELOPMENT SERVICES, INC. (PARRDS); PHILIPPINE PARTNERSHIP FOR
THE DEVELOPMENT OF HUMAN RESOURCES IN THE RURAL AREAS, INC.
(PHILDHRRA); WOMENS LEGAL BUREAU (WLB); CENTER FOR
ALTERNATIVE DEVELOPMENT INITIATIVES, INC. (CADI); UPLAND
DEVELOPMENT INSTITUTE (UDI); KINAIYAHAN FOUNDATION, INC.; SENTRO
NG ALTERNATIBONG LINGAP PANLIGAL (SALIGAN); and LEGAL RIGHTS
AND NATURAL RESOURCES CENTER, INC. (LRC), petitioners, vs. VICTOR O.
RAMOS, Secretary, Department of Environment and Natural Resources
(DENR); HORACIO RAMOS, Director, Mines and Geosciences Bureau (MGB-
DENR); RUBEN TORRES, Executive Secretary; and WMC (PHILIPPINES), INC.,
[4]
respondents.

RESOLUTION
PANGANIBAN, J.:

All mineral resources are owned by the State. Their exploration, development and
utilization (EDU) must always be subject to the full control and supervision of the State.
More specifically, given the inadequacy of Filipino capital and technology in large-
scale EDU activities, the State may secure the help of foreign companies in all relevant
matters -- especially financial and technical assistance -- provided that, at all times, the
State maintains its right of full control. The foreign assistor or contractor assumes all
financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given
reasonable management, operational, marketing, audit and other prerogatives to protect
its investments and to enable the business to succeed.
Full control is not anathematic to day-to-day management by the contractor, provided
that the State retains the power to direct overall strategy; and to set aside, reverse or
modify plans and actions of the contractor. The idea of full control is similar to that which is
exercised by the board of directors of a private corporation: the performance of
managerial, operational, financial, marketing and other functions may be delegated to
subordinate officers or given to contractual entities, but the board retains full residual
control of the business.
Who or what organ of government actually exercises this power of control on behalf of
the State? The Constitution is crystal clear: the President. Indeed, the Chief Executive is
the official constitutionally mandated to enter into agreements with foreign owned
corporations. On the other hand, Congress may review the action of the President once it
is notified of every contract entered into in accordance with this [constitutional] provision
within thirty days from its execution. In contrast to this express mandate of the President
and Congress in the EDU of natural resources, Article XII of the Constitution is silent on
the role of the judiciary. However, should the President and/or Congress gravely abuse
their discretion in this regard, the courts may -- in a proper case -- exercise their residual
duty under Article VIII. Clearly then, the judiciary should not inordinately interfere in the
exercise of this presidential power of control over the EDU of our natural resources.
The Constitution should be read in broad, life-giving strokes. It should not be used to
strangulate economic growth or to serve narrow, parochial interests. Rather, it should be
construed to grant the President and Congress sufficient discretion and reasonable
leeway to enable them to attract foreign investments and expertise, as well as to secure
for our people and our posterity the blessings of prosperity and peace.
On the basis of this control standard, this Court upholds the constitutionality of the
Philippine Mining Law, its Implementing Rules and Regulations -- insofar as they relate to
financial and technical agreements -- as well as the subject Financial and Technical
Assistance Agreement (FTAA).[5]

Background

The Petition for Prohibition and Mandamus before the Court challenges the
constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (2)
its Implementing Rules and Regulations (DENR Administrative Order No. [DAO] 96-40);
and (3) the FTAA dated March 30, 1995,[6] executed by the government with Western
Mining Corporation (Philippines), Inc. (WMCP).[7]
On January 27, 2004, the Court en banc promulgated its Decision[8] granting the Petition
and declaring the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well as of
the entire FTAA executed between the government and WMCP, mainly on the finding that
FTAAs are service contracts prohibited by the 1987 Constitution.
The Decision struck down the subject FTAA for being similar to service contracts, [9] which,
though permitted under the 1973 Constitution, [10] were subsequently denounced for being
antithetical to the principle of sovereignty over our natural resources, because they allowed
foreign control over the exploitation of our natural resources, to the prejudice of the Filipino
nation.
The Decision quoted several legal scholars and authors who had criticized service
contracts for, inter alia, vesting in the foreign contractor exclusive management and
control of the enterprise, including operation of the field in the event petroleum was
discovered; control of production, expansion and development; nearly unfettered control
over the disposition and sale of the products discovered/extracted; effective ownership of
the natural resource at the point of extraction; and beneficial ownership of our economic
resources. According to the Decision, the 1987 Constitution (Section 2 of Article XII)
effectively banned such service contracts.
Subsequently, respondents filed separate Motions for Reconsideration. In a Resolution
dated March 9, 2004, the Court required petitioners to comment thereon. In the Resolution
of June 8, 2004, it set the case for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their
respective Memoranda in amplification of their arguments. In a Resolution issued later the
same day, June 29, 2004, the Court noted, inter alia, the Manifestation and Motion (in lieu
of comment) filed by the Office of the Solicitor General (OSG) on behalf of public
respondents. The OSG said that it was not interposing any objection to the Motion for
Intervention filed by the Chamber of Mines of the Philippines, Inc. (CMP) and was in fact
joining and adopting the latters Motion for Reconsideration.
Memoranda were accordingly filed by the intervenor as well as by petitioners, public
respondents, and private respondent, dwelling at length on the three issues discussed
below. Later, WMCP submitted its Reply Memorandum, while the OSG -- in obedience to
an Order of this Court -- filed a Compliance submitting copies of more FTAAs entered into
by the government.

Three Issues Identified by the Court

During the Oral Argument, the Court identified the three issues to be resolved in the
present controversy, as follows:
1. Has the case been rendered moot by the sale of WMC shares in WMCP to
Sagittarius (60 percent of Sagittarius equity is owned by Filipinos and/or Filipino-owned
corporations while 40 percent is owned by Indophil Resources NL, an Australian
company) and by the subsequent transfer and registration of the FTAA from WMCP to
Sagittarius?
2. Assuming that the case has been rendered moot, would it still be proper to resolve
the constitutionality of the assailed provisions of the Mining Law, DAO 96-40 and the
WMCP FTAA?
3. What is the proper interpretation of the phrase Agreements Involving Either
Technical or Financial Assistance contained in paragraph 4 of Section 2 of Article XII of
the Constitution?
Should the Motion for Reconsideration
Be Granted?
Respondents and intervenors Motions for Reconsideration should be granted, for the
reasons discussed below. The foregoing three issues identified by the Court shall now be
taken up seriatim.
First Issue:
Mootness
In declaring unconstitutional certain provisions of RA 7942, DAO 96-40, and the
WMCP FTAA, the majority Decision agreed with petitioners contention that the subject
FTAA had been executed in violation of Section 2 of Article XII of the 1987 Constitution.
According to petitioners, the FTAAs entered into by the government with foreign-owned
corporations are limited by the fourth paragraph of the said provision to agreements
involving only technical or financial assistance for large-scale exploration, development
and utilization of minerals, petroleum and other mineral oils. Furthermore, the foreign
contractor is allegedly permitted by the FTAA in question to fully manage and control the
mining operations and, therefore, to acquire beneficial ownership of our mineral
resources.
The Decision merely shrugged off the Manifestation by WMPC informing the Court (1)
that on January 23, 2001, WMC had sold all its shares in WMCP to Sagittarius Mines, Inc.,
60 percent of whose equity was held by Filipinos; and (2) that the assailed FTAA had
likewise been transferred from WMCP to Sagittarius. [11] The ponencia declared that the
instant case had not been rendered moot by the transfer and registration of the FTAA to a
Filipino-owned corporation, and that the validity of the said transfer remained in dispute
and awaited final judicial determination.[12] Patently therefore, the Decision is anchored on
the assumption that WMCP had remained a foreign corporation.
The crux of this issue of mootness is the fact that WMCP, at the time it entered into the
FTAA, happened to be wholly owned by WMC Resources International Pty., Ltd. (WMC),
which in turn was a wholly owned subsidiary of Western Mining Corporation Holdings Ltd.,
a publicly listed major Australian mining and exploration company.
The nullity of the FTAA was obviously premised upon the contractor being
a foreign corporation. Had the FTAA been originally issued to a Filipino-owned
corporation, there would have been no constitutionality issue to speak of. Upon the other
hand, the conveyance of the WMCP FTAA to a Filipino corporation can be likened to the
sale of land to a foreigner who subsequently acquires Filipino citizenship, or who later
resells the same land to a Filipino citizen. The conveyance would be validated, as the
property in question would no longer be owned by a disqualified vendee.
And, inasmuch as the FTAA is to be implemented now by a Filipino corporation, it is no
longer possible for the Court to declare it unconstitutional. The case pending in the Court
of Appeals is a dispute between two Filipino companies (Sagittarius and Lepanto), both
claiming the right to purchase the foreign shares in WMCP. So, regardless of which side
eventually wins, the FTAA would still be in the hands of a qualified Filipino company.
Considering that there is no longer any justiciable controversy, the plea to nullify the
Mining Law has become a virtual petition for declaratory relief, over which this Court has
no original jurisdiction.
In their Final Memorandum, however, petitioners argue that the case has not become
moot, considering the invalidity of the alleged sale of the shares in WMCP from WMC to
Sagittarius, and of the transfer of the FTAA from WMCP to Sagittarius, resulting in the
change of contractor in the FTAA in question. And even assuming that the said transfers
were valid, there still exists an actual case predicated on the invalidity of RA 7942 and its
Implementing Rules and Regulations (DAO 96-40). Presently, we shall discuss petitioners
objections to the transfer of both the shares and the FTAA. We shall take up the alleged
invalidity of RA 7942 and DAO 96-40 later on in the discussion of the third issue.
No Transgression of the Constitution
by the Transfer of the WMCP Shares

Petitioners claim, first, that the alleged invalidity of the transfer of the WMCP shares to
Sagittarius violates the fourth paragraph of Section 2 of Article XII of the
Constitution; second, that it is contrary to the provisions of the WMCP FTAA itself;
and third, that the sale of the shares is suspect and should therefore be the subject of a
case in which its validity may properly be litigated.
On the first ground, petitioners assert that paragraph 4 of Section 2 of Article XII
permits the government to enter into FTAAs only with foreign-owned corporations.
Petitioners insist that the first paragraph of this constitutional provision limits the
participation of Filipino corporations in the exploration, development and utilization of
natural resources to only three species of contracts -- production sharing, co-production
and joint venture -- to the exclusion of all other arrangements or variations thereof, and the
WMCP FTAA may therefore not be validly assumed and implemented by Sagittarius. In
short, petitioners claim that a Filipino corporation is not allowed by the Constitution to
enter into an FTAA with the government.
However, a textual analysis of the first paragraph of Section 2 of Article XII does not
support petitioners argument. The pertinent part of the said provision states: Sec. 2. x x x
The exploration, development and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities, or it
may enter into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. x x x. Nowhere in the provision is there any express limitation or
restriction insofar as arrangements other than the three aforementioned contractual
schemes are concerned.
Neither can one reasonably discern any implied stricture to that effect. Besides, there
is no basis to believe that the framers of the Constitution, a majority of whom were
obviously concerned with furthering the development and utilization of the countrys natural
resources, could have wanted to restrict Filipino participation in that area. This point is
clear, especially in the light of the overarching constitutional principle of giving preference
and priority to Filipinos and Filipino corporations in the development of our natural
resources.
Besides, even assuming (purely for arguments sake) that a constitutional limitation
barring Filipino corporations from holding and implementing an FTAA actually exists,
nevertheless, such provision would apply only to the transfer of the FTAA to Sagittarius,
but definitely not to the sale of WMCs equity stake in WMCP to Sagittarius. Otherwise, an
unreasonable curtailment of property rights without due process of law would ensue.
Petitioners argument must therefore fail.

FTAA Not Intended


Solely for Foreign Corporation
Equally barren of merit is the second ground cited by petitioners -- that the FTAA was
intended to apply solely to a foreign corporation, as can allegedly be seen from the
provisions therein. They manage to cite only one WMCP FTAA provision that can be
regarded as clearly intended to apply only to a foreign contractor: Section 12, which
provides for international commercial arbitration under the auspices of the International
Chamber of Commerce, after local remedies are exhausted. This provision, however, does
not necessarily imply that the WMCP FTAA cannot be transferred to and assumed by a
Filipino corporation like Sagittarius, in which event the said provision should simply be
disregarded as a superfluity.

No Need for a Separate


Litigation of the Sale of Shares

Petitioners claim as third ground the suspicious sale of shares from WMC to
Sagittarius; hence, the need to litigate it in a separate case. Section 40 of RA 7942 (the
Mining Law) allegedly requires the Presidents prior approval of a transfer.
A re-reading of the said provision, however, leads to a different conclusion. Sec.
40. Assignment/Transfer -- A financial or technical assistance agreement may be
assigned or transferred, in whole or in part, to a qualified person subject to the prior
approval of the President: Provided, That the President shall notify Congress of every
financial or technical assistance agreement assigned or converted in accordance with this
provision within thirty (30) days from the date of the approval thereof.
Section 40 expressly applies to the assignment or transfer of the FTAA, not to the sale
and transfer of shares of stock in WMCP. Moreover, when the transferee of an FTAA is
another foreign corporation, there is a logical application of the requirement of prior
approval by the President of the Republic and notification to Congress in the event of
assignment or transfer of an FTAA. In this situation, such approval and notification are
appropriate safeguards, considering that the new contractor is the subject of a foreign
government.
On the other hand, when the transferee of the FTAA happens to be
a Filipino corporation, the need for such safeguard is not critical; hence, the lack of prior
approval and notification may not be deemed fatal as to render the transfer invalid.
Besides, it is not as if approval by the President is entirely absent in this instance. As
pointed out by private respondent in its Memorandum,[13] the issue of approval is the
subject of one of the cases brought by Lepanto against Sagittarius in GR No. 162331.
That case involved the review of the Decision of the Court of Appeals dated November 21,
2003 in CA-GR SP No. 74161, which affirmed the DENR Order dated December 31, 2001
and the Decision of the Office of the President dated July 23, 2002, both approving the
assignment of the WMCP FTAA to Sagittarius.
Petitioners also question the sale price and the financial capacity of the transferee.
According to the Deed of Absolute Sale dated January 23, 2001, executed between WMC
and Sagittarius, the price of the WMCP shares was fixed at US$9,875,000, equivalent
to P553 million at an exchange rate of 56:1. Sagittarius had an authorized capital stock
of P250 million and a paid up capital of P60 million. Therefore, at the time of approval of
the sale by the DENR, the debt-to-equity ratio of the transferee was over 9:1 -- hardly
ideal for an FTAA contractor, according to petitioners.
However, private respondents counter that the Deed of Sale specifically provides that
the payment of the purchase price would take place only after Sagittarius commencement
of commercial production from mining operations, if at all. Consequently, under the
circumstances, we believe it would not be reasonable to conclude, as petitioners did, that
the transferees high debt-to-equity ratio per se necessarily carried negative implications
for the enterprise; and it would certainly be improper to invalidate the sale on that basis,
as petitioners propose.

FTAA Not Void,


Thus Transferrable

To bolster further their claim that the case is not moot, petitioners insist that the FTAA
is void and, hence cannot be transferred; and that its transfer does not operate to cure the
constitutional infirmity that is inherent in it; neither will a change in the circumstances of
one of the parties serve to ratify the void contract.
While the discussion in their Final Memorandum was skimpy, petitioners in their
Comment (on the MR) did ratiocinate that this Court had declared the FTAA to be void
because, at the time it was executed with WMCP, the latter was a fully foreign-owned
corporation, in which the former vested full control and management with respect to the
exploration, development and utilization of mineral resources, contrary to the provisions of
paragraph 4 of Section 2 of Article XII of the Constitution. And since the FTAA was per se
void, no valid right could be transferred; neither could it be ratified, so petitioners
conclude.
Petitioners have assumed as fact that which has yet to be established. First and
foremost, the Decision of this Court declaring the FTAA void has not yet become final.
That was precisely the reason the Court still heard Oral Argument in this case. Second,
the FTAA does not vest in the foreign corporation full control and supervision over the
exploration, development and utilization of mineral resources, to the exclusion of the
government. This point will be dealt with in greater detail below; but for now, suffice it to
say that a perusal of the FTAA provisions will prove that the government has effective
overall direction and control of the mining operations, including marketing and product
pricing, and that the contractors work programs and budgets are subject to its review and
approval or disapproval.
As will be detailed later on, the government does not have to micro-manage the mining
operations and dip its hands into the day-to-day management of the enterprise in order to
be considered as having overall control and direction. Besides, for practical and pragmatic
reasons, there is a need for government agencies to delegate certain aspects of the
management work to the contractor. Thus the basis for declaring the FTAA void still has to
be revisited, reexamined and reconsidered.
Petitioners sniff at the citation of Chavez v. Public Estates Authority,[14] and Halili v. CA,
[15]
claiming that the doctrines in these cases are wholly inapplicable to the instant case.
Chavez clearly teaches: Thus, the Court has ruled consistently that where a Filipino
citizen sells land to an alien who later sells the land to a Filipino, the invalidity of the first
transfer is corrected by the subsequent sale to a citizen. Similarly, where the alien who
buys the land subsequently acquires Philippine citizenship, the sale is validated since the
purpose of the constitutional ban to limit land ownership to Filipinos has been achieved. In
short, the law disregards the constitutional disqualification of the buyer to hold land if the
land is subsequently transferred to a qualified party, or the buyer himself becomes a
qualified party.[16]
In their Comment, petitioners contend that in Chavez and Halili, the object of the
transfer (the land) was not what was assailed for alleged unconstitutionality. Rather, it was
the transaction that was assailed; hence subsequent compliance with constitutional
provisions would cure its infirmity. In contrast, in the instant case it is the FTAA itself, the
object of the transfer, that is being assailed as invalid and unconstitutional. So, petitioners
claim that the subsequent transfer of a void FTAA to a Filipino corporation would not cure
the defect.
Petitioners are confusing themselves. The present Petition has been filed, precisely
because the grantee of the FTAA was a wholly owned subsidiary of a foreign corporation.
It cannot be gainsaid that anyone would have asserted that the same FTAA was void if it
had at the outset been issued to a Filipino corporation. The FTAA, therefore, is not per se
defective or unconstitutional. It was questioned only because it had been issued to an
allegedly non-qualified, foreign-owned corporation.
We believe that this case is clearly analogous to Halili, in which the land acquired by a
non-Filipino was re-conveyed to a qualified vendee and the original transaction was
thereby cured. Paraphrasing Halili, the same rationale applies to the instant case:
assuming arguendo the invalidity of its prior grant to a foreign corporation, the disputed
FTAA -- being now held by a Filipino corporation -- can no longer be assailed; the
objective of the constitutional provision -- to keep the exploration, development and
utilization of our natural resources in Filipino hands -- has been served.
More accurately speaking, the present situation is one degree better than that
obtaining in Halili, in which the original sale to a non-Filipino was clearly and indisputably
violative of the constitutional prohibition and thus void ab initio. In the present case, the
issuance/grant of the subject FTAA to the then foreign-owned WMCP was not illegal, void
or unconstitutional at the time. The matter had to be brought to court, precisely for
adjudication as to whether the FTAA and the Mining Law had indeed violated the
Constitution. Since, up to this point, the decision of this Court declaring the FTAA void has
yet to become final, to all intents and purposes, the FTAA must be deemed valid and
constitutional.[17]
At bottom, we find completely outlandish petitioners contention that an FTAA could be
entered into by the government only with a foreign corporation, never with a Filipino
enterprise. Indeed, the nationalistic provisions of the Constitution are all anchored on the
protection of Filipino interests. How petitioners can now argue that foreigners have the
exclusive right to FTAAs totally overturns the entire basis of the Petition -- preference for
the Filipino in the exploration, development and utilization of our natural resources. It does
not take deep knowledge of law and logic to understand that what the Constitution grants
to foreigners should be equally available to Filipinos.

Second Issue:
Whether the Court Can Still Decide the Case,
Even Assuming It Is Moot

All the protagonists are in agreement that the Court has jurisdiction to decide this
controversy, even assuming it to be moot.
Petitioners stress the following points. First, while a case becomes moot and academic
when there is no more actual controversy between the parties or no useful purpose can
be served in passing upon the merits, [18] what is at issue in the instant case is not only the
validity of the WMCP FTAA, but also the constitutionality of RA 7942 and its Implementing
Rules and Regulations. Second, the acts of private respondent cannot operate to cure the
law of its alleged unconstitutionality or to divest this Court of its jurisdiction to
decide. Third, the Constitution imposes upon the Supreme Court the duty to declare
invalid any law that offends the Constitution.
Petitioners also argue that no amendatory laws have been passed to make the Mining
Act of 1995 conform to constitutional strictures (assuming that, at present, it does not);
that public respondents will continue to implement and enforce the statute until this Court
rules otherwise; and that the said law continues to be the source of legal authority in
accepting, processing and approving numerous applications for mining rights.
Indeed, it appears that as of June 30, 2002, some 43 FTAA applications had been filed
with the Mines and Geosciences Bureau (MGB), with an aggregate area of 2,064,908.65
hectares -- spread over Luzon, the Visayas and Mindanao [19] -- applied for. It may be a bit
far-fetched to assert, as petitioners do, that each and every FTAA that was entered into
under the provisions of the Mining Act invites potential litigation for as long as the
constitutional issues are not resolved with finality. Nevertheless, we must concede that
there exists the distinct possibility that one or more of the future FTAAs will be the subject
of yet another suit grounded on constitutional issues.
But of equal if not greater significance is the cloud of uncertainty hanging over the
mining industry, which is even now scaring away foreign investments. Attesting to this
climate of anxiety is the fact that the Chamber of Mines of the Philippines saw the urgent
need to intervene in the case and to present its position during the Oral Argument; and
that Secretary General Romulo Neri of the National Economic Development Authority
(NEDA) requested this Court to allow him to speak, during that Oral Argument, on the
economic consequences of the Decision of January 27, 2004.[20]
We are convinced. We now agree that the Court must recognize the exceptional
character of the situation and the paramount public interest involved, as well as the
necessity for a ruling to put an end to the uncertainties plaguing the mining industry and
the affected communities as a result of doubts cast upon the constitutionality and validity
of the Mining Act, the subject FTAA and future FTAAs, and the need to avert a multiplicity
of suits. Paraphrasing Gonzales v. Commission on Elections,[21] it is evident that strong
reasons of public policy demand that the constitutionality issue be resolved now.[22]
In further support of the immediate resolution of the constitutionality issue, public
respondents cite Acop v. Guingona,[23] to the effect that the courts will decide a question --
otherwise moot and academic -- if it is capable of repetition, yet evading review.[24] Public
respondents ask the Court to avoid a situation in which the constitutionality issue may
again arise with respect to another FTAA, the resolution of which may not be achieved
until after it has become too late for our mining industry to grow out of its infancy. They
also recall Salonga v. Cruz Pao,[25] in which this Court declared that (t)he Court also has
the duty to formulate guiding and controlling constitutional principles, precepts, doctrines
or rules. It has the symbolic function of educating the bench and bar on the extent of
protection given by constitutional guarantees. x x x.
The mootness of the case in relation to the WMCP FTAA led the
undersigned ponente to state in his dissent to the Decision that there was no more
justiciable controversy and the plea to nullify the Mining Law has become a virtual petition
for declaratory relief.[26] The entry of the Chamber of Mines of the Philippines, Inc.,
however, has put into focus the seriousness of the allegations of unconstitutionality of RA
7942 and DAO 96-40 which converts the case to one for prohibition [27] in the enforcement
of the said law and regulations.
Indeed, this CMP entry brings to fore that the real issue in this case is whether
paragraph 4 of Section 2 of Article XII of the Constitution is contravened by RA 7942 and
DAO 96-40, not whether it was violated by specific acts implementing RA 7942 and DAO
96-40. [W]hen an act of the legislative department is seriously alleged to have infringed
the Constitution, settling the controversy becomes the duty of this Court. By the mere
enactment of the questioned law or the approval of the challenged action, the dispute is
said to have ripened into a judicial controversy even without any other overt act. [28] This
ruling can be traced from Taada v. Angara,[29] in which the Court said:

In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the
Constitution, the petition no doubt raises a justiciable controversy. Where an action of the
legislative branch is seriously alleged to have infringed the Constitution, it becomes not only the
right but in fact the duty of the judiciary to settle the dispute.

xxxxxxxxx

As this Court has repeatedly and firmly emphasized in many cases, it will not shirk, digress from or
abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse
of discretion brought before it in appropriate cases, committed by any officer, agency,
instrumentality or department of the government. [30]

Additionally, the entry of CMP into this case has also effectively forestalled any
possible objections arising from the standing or legal interest of the original parties.
For all the foregoing reasons, we believe that the Court should proceed to a resolution
of the constitutional issues in this case.

Third Issue:
The Proper Interpretation of the Constitutional Phrase
Agreements Involving Either Technical or Financial Assistance

The constitutional provision at the nucleus of the controversy is paragraph 4 of Section


2 of Article XII of the 1987 Constitution. In order to appreciate its context, Section 2 is
reproduced in full:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture or production-sharing agreements with
Filipino citizens or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, beneficial use may be the measure and limit of the
grant.

The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays and lagoons.

The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution. [31]

No Restriction of Meaning by
a Verba Legis Interpretation
To interpret the foregoing provision, petitioners adamantly assert that the language of
the Constitution should prevail; that the primary method of interpreting it is to seek the
ordinary meaning of the words used in its provisions. They rely on rulings of this Court,
such as the following:

The fundamental principle in constitutional construction however is that the primary source from
which to ascertain constitutional intent or purpose is the language of the provision itself. The
presumption is that the words in which the constitutional provisions are couched express the
objective sought to be attained. In other words, verba legis prevails. Only when the meaning of the
words used is unclear and equivocal should resort be made to extraneous aids of construction and
interpretation, such as the proceedings of the Constitutional Commission or Convention to shed
light on and ascertain the true intent or purpose of the provision being construed. [32]

Very recently, in Francisco v. The House of Representatives,[33] this Court indeed had
the occasion to reiterate the well-settled principles of constitutional construction:

First, verba legis, that is, wherever possible, the words used in the Constitution must be given
their ordinary meaning except where technical terms are employed. x x x.

xxxxxxxxx

Second, where there is ambiguity, ratio legis est anima. The words of the Constitution should be
interpreted in accordance with the intent of its framers. x x x.

xxxxxxxxx

Finally, ut magis valeat quam pereat. The Constitution is to be interpreted as a whole. [34]

For ease of reference and in consonance with verba legis, we reconstruct and stratify
the aforequoted Section 2 as follows:

1. All natural resources are owned by the State. Except for agricultural lands, natural resources
cannot be alienated by the State.

2. The exploration, development and utilization (EDU) of natural resources shall be under the full
control and supervision of the State.

3. The State may undertake these EDU activities through either of the following:

(a) By itself directly and solely

(b) By (i) co-production; (ii) joint venture; or (iii) production sharing agreements with Filipino
citizens or corporations, at least 60 percent of the capital of which is owned by such citizens

4. Small-scale utilization of natural resources may be allowed by law in favor of Filipino citizens.
5. For large-scale EDU of minerals, petroleum and other mineral oils, the President may enter into
agreements with foreign-owned corporations involving either technical or financial assistance
according to the general terms and conditions provided by law x x x.

Note that in all the three foregoing mining activities -- exploration, development and
utilization -- the State may undertake such EDU activities by itself or in tandem with
Filipinos or Filipino corporations, except in two instances: first, in small-scale utilization of
natural resources, which Filipinos may be allowed by law to undertake; and second, in
large-scale EDU of minerals, petroleum and mineral oils, which may be undertaken by the
State via agreements with foreign-owned corporations involving either technical or
financial assistance as provided by law.
Petitioners claim that the phrase agreements x x x involving either technical or
financial assistance simply means technical assistance or financial assistance
agreements, nothing more and nothing else. They insist that there is no ambiguity in the
phrase, and that a plain reading of paragraph 4 quoted above leads to the inescapable
conclusion that what a foreign-owned corporation may enter into with the government is
merely an agreement for either financial or technical assistance only, for the large-scale
exploration, development and utilization of minerals, petroleum and other mineral oils;
such a limitation, they argue, excludes foreign management and operation of a mining
enterprise.[35]
This restrictive interpretation, petitioners believe, is in line with the general policy
enunciated by the Constitution reserving to Filipino citizens and corporations the use and
enjoyment of the countrys natural resources. They maintain that this Courts Decision [36] of
January 27, 2004 correctly declared the WMCP FTAA, along with pertinent provisions of
RA 7942, void for allowing a foreign contractor to have direct and exclusive management
of a mining enterprise. Allowing such a privilege not only runs counter to the full control
and supervision that the State is constitutionally mandated to exercise over the
exploration, development and utilization of the countrys natural resources; doing so also
vests in the foreign company beneficial ownership of our mineral resources. It will be
recalled that the Decision of January 27, 2004 zeroed in on management or other forms of
assistance or other activities associated with the service contracts of the martial law
regime, since the management or operation of mining activities by foreign contractors,
which is the primary feature of service contracts, was precisely the evil that the drafters of
the 1987 Constitution sought to eradicate.
On the other hand, the intervenor[37] and public respondents argue that the FTAA
allowed by paragraph 4 is not merely an agreement for supplying limited and specific
financial or technical services to the State. Rather, such FTAA is a comprehensive
agreement for the foreign-owned corporations integrated exploration, development and
utilization of mineral, petroleum or other mineral oils on a large-scale basis. The
agreement, therefore, authorizes the foreign contractors rendition of a whole range of
integrated and comprehensive services, ranging from the discovery to the development,
utilization and production of minerals or petroleum products.
We do not see how applying a strictly literal or verba legis interpretation of paragraph 4
could inexorably lead to the conclusions arrived at in the ponencia. First, the drafters
choice of words -- their use of the phrase agreements x x x involving either technical or
financial assistance -- does not indicate the intent to exclude other modes of assistance.
The drafters opted to use involving when they could have simply
said agreements for financial or technical assistance, if that was their intention to begin
with. In this case, the limitation would be very clear and no further debate would ensue.
In contrast, the use of the word involving signifies the possibility of the inclusion of
other forms of assistance or activities having to do with, otherwise related to or
compatible with financial or technical assistance. The word involving as used in this
context has three connotations that can be differentiated thus: one, the sense of
concerning, having to do with, or affecting; two, entailing, requiring, implying or
necessitating; and three, including, containing or comprising.[38]
Plainly, none of the three connotations convey a sense of exclusivity. Moreover, the
word involving, when understood in the sense of including, as in including technical or
financial assistance, necessarily implies that there are activities other than those that are
being included. In other words, if an agreement includes technical or financial assistance,
there is apart from such assistance -- something else already in, and covered or may be
covered by, the said agreement.
In short, it allows for the possibility that matters, other than those explicitly mentioned,
could be made part of the agreement. Thus, we are now led to the conclusion that the use
of the word involving implies that these agreements with foreign corporations are not
limited to mere financial or technical assistance. The difference in sense becomes very
apparent when we juxtapose agreements for technical or financial assistance against
agreements including technical or financial assistance. This much is unalterably clear in
a verba legis approach.
Second, if the real intention of the drafters was to confine foreign corporations to
financial or technical assistance and nothing more, their language would have certainly
been so unmistakably restrictive and stringent as to leave no doubt in anyones mind
about their true intent. For example, they would have used the sentence foreign
corporations are absolutely prohibited from involvement in the management or
operation of mining or similar ventures or words of similar import. A search for such
stringent wording yields negative results. Thus, we come to the inevitable conclusion
that there was a conscious and deliberate decision to avoid the use of restrictive
wording that bespeaks an intent not to use the expression agreements x x x
involving either technical or financial assistance in an exclusionary and limiting
manner.

Deletion of Service Contracts to


Avoid Pitfalls of Previous Constitutions,
Not to Ban Service Contracts Per Se

Third, we do not see how a verba legis approach leads to the conclusion that the
management or operation of mining activities by foreign contractors, which is the primary
feature of service contracts, was precisely the evil that the drafters of the 1987
Constitution sought to eradicate. Nowhere in the above-quoted Section can be discerned
the objective to keep out of foreign hands the management or operation of mining
activities or the plan to eradicate service contracts as these were understood in the 1973
Constitution. Still, petitioners maintain that the deletion or omission from the 1987
Constitution of the term service contracts found in the 1973 Constitution sufficiently proves
the drafters intent to exclude foreigners from the management of the affected enterprises.
To our mind, however, such intent cannot be definitively and conclusively
established from the mere failure to carry the same expression or term over to the new
Constitution, absent a more specific, explicit and unequivocal statement to that effect.
What petitioners seek (a complete ban on foreign participation in the management of
mining operations, as previously allowed by the earlier Constitutions) is nothing short of
bringing about a momentous sea change in the economic and developmental policies; and
the fundamentally capitalist, free-enterprise philosophy of our government. We cannot
imagine such a radical shift being undertaken by our government, to the great prejudice of
the mining sector in particular and our economy in general, merely on the basis of
the omission of the terms service contract from or the failure to carry them over to the new
Constitution. There has to be a much more definite and even unarguable basis for such a
drastic reversal of policies.
Fourth, a literal and restrictive interpretation of paragraph 4, such as that proposed by
petitioners, suffers from certain internal logical inconsistencies that generate ambiguities
in the understanding of the provision. As the intervenor pointed out, there has never been
any constitutional or statutory provision that reserved to Filipino citizens or corporations, at
least 60 percent of which is Filipino-owned, the rendition of financial or technical
assistance to companies engaged in mining or the development of any other natural
resource. The taking out of foreign-currency or peso-denominated loans or any other kind
of financial assistance, as well as the rendition of technical assistance -- whether to the
State or to any other entity in the Philippines -- has never been restricted in favor of
Filipino citizens or corporations having a certain minimum percentage of Filipino equity.
Such a restriction would certainly be preposterous and unnecessary. As a matter of fact,
financial, and even technical assistance, regardless of the nationality of its source, would
be welcomed in the mining industry anytime with open arms, on account of the dearth of
local capital and the need to continually update technological know-how and improve
technical skills.
There was therefore no need for a constitutional provision specifically allowing foreign-
owned corporations to render financial or technical assistance, whether in respect of
mining or some other resource development or commercial activity in the Philippines. The
last point needs to be emphasized: if merely financial or technical assistance
agreements are allowed, there would be no need to limit them to large-scale mining
operations, as there would be far greater need for them in the smaller-scale mining
activities (and even in non-mining areas). Obviously, the provision in question was
intended to refer to agreements other than those for mere financial or technical
assistance.
In like manner, there would be no need to require the President of the Republic to
report to Congress, if only financial or technical assistance agreements are involved. Such
agreements are in the nature of foreign loans that -- pursuant to Section 20 of Article
VII[39] of the 1987 Constitution -- the President may contract or guarantee, merely with the
prior concurrence of the Monetary Board. In turn, the Board is required to report to
Congress within thirty days from the end of every quarter of the calendar year, not thirty
days after the agreement is entered into.
And if paragraph 4 permits only agreements for loans and other forms of financial, or
technical assistance, what is the point of requiring that they be based on real contributions
to the economic growth and general welfare of the country? For instance, how is one to
measure and assess the real contributions to the economic growth and general welfare of
the country that may ensue from a foreign-currency loan agreement or a technical-
assistance agreement for, say, the refurbishing of an existing power generating plant for a
mining operation somewhere in Mindanao? Such a criterion would make more sense
when applied to a major business investment in a principal sector of the industry.
The conclusion is clear and inescapable -- a verba legis construction shows that
paragraph 4 is not to be understood as one limited only to foreign loans (or other forms of
financial support) and to technical assistance. There is definitely more to it than
that. These are provisions permitting participation by foreign companies; requiring
the Presidents report to Congress; and using, as yardstick, contributions based on
economic growth and general welfare. These were neither accidentally inserted into
the Constitution nor carelessly cobbled together by the drafters in lip service to
shallow nationalism. The provisions patently have significance and usefulness in a
context that allows agreements with foreign companies to include more than mere
financial or technical assistance.
Fifth, it is argued that Section 2 of Article XII authorizes nothing more than a rendition
of specific and limited financial service or technical assistance by a foreign company. This
argument begs the question To whom or for whom would it be rendered? or Who is being
assisted? If the answer is The State, then it necessarily implies that the State itself is the
one directly and solely undertaking the large-scale exploration, development and
utilization of a mineral resource, so it follows that the State must itself bear the liability and
cost of repaying the financing sourced from the foreign lender and/or of paying
compensation to the foreign entity rendering technical assistance.
However, it is of common knowledge, and of judicial notice as well, that the
government is and has for many many years been financially strapped, to the point that
even the most essential services have suffered serious curtailments -- education and
health care, for instance, not to mention judicial services -- have had to make do with
inadequate budgetary allocations. Thus, government has had to resort to build-operate-
transfer and similar arrangements with the private sector, in order to get vital infrastructure
projects built without any governmental outlay.
The very recent brouhaha over the gargantuan fiscal crisis or budget deficit merely
confirms what the ordinary citizen has suspected all along. After the reality check, one will
have to admit the implausibility of a direct undertaking -- by the State itself -- of large-
scale exploration, development and utilization of minerals, petroleum and other mineral
oils. Such an undertaking entails not only humongous capital requirements, but also the
attendant risk of never finding and developing economically viable quantities of minerals,
petroleum and other mineral oils.[40]
It is equally difficult to imagine that such a provision restricting foreign companies to
the rendition of only financial or technical assistance to the government was deliberately
crafted by the drafters of the Constitution, who were all well aware of the capital-intensive
and technology-oriented nature of large-scale mineral or petroleum extraction and the
countrys deficiency in precisely those areas.[41] To say so would be tantamount to asserting
that the provision was purposely designed to ladle the large-scale development and
utilization of mineral, petroleum and related resources with impossible conditions; and to
remain forever and permanently reserved for future generations of Filipinos.

A More Reasonable Look


at the Charters Plain Language

Sixth, we shall now look closer at the plain language of the Charter and examining the
logical inferences. The drafters chose to emphasize and highlight agreements x x x
involving either technical or financial assistance in relation to foreign corporations
participation in large-scale EDU. The inclusion of this clause on technical or financial
assistance recognizes the fact that foreign business entities and multinational corporations
are the ones with the resources and know-how to provide technical and/or financial
assistance of the magnitude and type required for large-scale exploration, development
and utilization of these resources.
The drafters -- whose ranks included many academicians, economists, businessmen,
lawyers, politicians and government officials -- were not unfamiliar with the practices of
foreign corporations and multinationals.
Neither were they so nave as to believe that these entities would provide assistance
without conditionalities or some quid pro quo. Definitely, as business persons well know
and as a matter of judicial notice, this matter is not just a question of signing a promissory
note or executing a technology transfer agreement. Foreign corporations usually require
that they be given a say in the management, for instance, of day-to-day operations of the
joint venture. They would demand the appointment of their own men as, for example,
operations managers, technical experts, quality control heads, internal auditors or
comptrollers. Furthermore, they would probably require seats on the Board of Directors --
all these to ensure the success of the enterprise and the repayment of the loans and other
financial assistance and to make certain that the funding and the technology they supply
would not go to waste. Ultimately, they would also want to protect their business
reputation and bottom lines.[42]
In short, the drafters will have to be credited with enough pragmatism and savvy to
know that these foreign entities will not enter into such agreements involving assistance
without requiring arrangements for the protection of their investments, gains and benefits.
Thus, by specifying such agreements involving assistance, the drafters necessarily
gave implied assent to everything that these agreements necessarily entailed; or that
could reasonably be deemed necessary to make them tenable and effective, including
management authority with respect to the day-to-day operations of the enterprise and
measures for the protection of the interests of the foreign corporation, PROVIDED THAT
Philippine sovereignty over natural resources and full control over the enterprise
undertaking the EDU activities remain firmly in the State.

Petitioners Theory Deflated by the


Absence of Closing-Out Rules or Guidelines

Seventh and final point regarding the plain-language approach, one of the practical
difficulties that results from it is the fact that there is nothing by way of transitory provisions
that would serve to confirm the theory that the omission of the term service contract from
the 1987 Constitution signaled the demise of service contracts.
The framers knew at the time they were deliberating that there were various service
contracts extant and in force and effect, including those in the petroleum industry. Many of
these service contracts were long-term (25 years) and had several more years to run. If
they had meant to ban service contracts altogether, they would have had to provide for
the termination or pretermination of the existing contracts. Accordingly, they would have
supplied the specifics and the when and how of effecting the extinguishment of these
existing contracts (or at least the mechanics for determining them); and of putting in place
the means to address the just claims of the contractors for compensation for their
investments, lost opportunities, and so on, if not for the recovery thereof.
If the framers had intended to put an end to service contracts, they would have at least
left specific instructions to Congress to deal with these closing-out issues, perhaps by way
of general guidelines and a timeline within which to carry them out. The following are
some extant examples of such transitory guidelines set forth in Article XVIII of our
Constitution:

Section 23. Advertising entities affected by paragraph (2), Section 11 of Article XVI of this
Constitution shall have five years from its ratification to comply on a graduated and proportionate
basis with the minimum Filipino ownership requirement therein.

xxxxxxxxx

Section 25. After the expiration in 1991 of the Agreement between the Republic of the Philippines
and the United States of America concerning military bases, foreign military bases, troops, or
facilities shall not be allowed in the Philippines except under a treaty duly concurred in by the
Senate and, when the Congress so requires, ratified by a majority of the votes cast by the people in
a national referendum held for that purpose, and recognized as a treaty by the other contracting
State.

Section 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shall remain operative for not more
than eighteen months after the ratification of this Constitution. However, in the national interest, as
certified by the President, the Congress may extend such period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order
and the list of the sequestered or frozen properties shall forthwith be registered with the proper
court. For orders issued before the ratification of this Constitution, the corresponding judicial
action or proceeding shall be filed within six months from its ratification. For those issued after
such ratification, the judicial action or proceeding shall be commenced within six months from the
issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding
is commenced as herein provided. [43]

It is inconceivable that the drafters of the Constitution would leave such an important
matter -- an expression of sovereignty as it were -- indefinitely hanging in the air in a
formless and ineffective state. Indeed, the complete absence of even a general framework
only serves to further deflate petitioners theory, like a childs balloon losing its air.
Under the circumstances, the logical inconsistencies resulting from petitioners literal
and purely verba legis approach to paragraph 4 of Section 2 of Article XII compel a resort
to other aids to interpretation.

Petitioners Posture Also Negated


by Ratio Legis Et Anima

Thus, in order to resolve the inconsistencies, incongruities and ambiguities


encountered and to supply the deficiencies of the plain-language approach, there is a
need for recourse to the proceedings of the 1986 Constitutional Commission. There is a
need for ratio legis et anima.

Service Contracts Not


Deconstitutionalized

Pertinent portions of the deliberations of the members of the Constitutional


Commission (ConCom) conclusively show that they discussed agreements involving
either technical or financial assistance in the same breadth as service contracts and used
the terms interchangeably. The following exchange between Commissioner Jamir
(sponsor of the provision) and Commissioner Suarez irrefutably proves that the
agreements involving technical or financial assistance were none other than service
contracts.
THE PRESIDENT. Commissioner Jamir is recognized. We are still on Section 3.
MR. JAMIR. Yes, Madam President. With respect to the second paragraph of
Section 3, my amendment by substitution reads: THE PRESIDENT MAY
ENTER INTO AGREEMENTS WITH FOREIGN-OWNED CORPORATIONS
INVOLVING EITHER TECHNICAL OR FINANCIAL ASSISTANCE FOR
LARGE-SCALE EXPLORATION, DEVELOPMENT AND UTILIZATION OF
NATURAL RESOURCES ACCORDING TO THE TERMS AND CONDITIONS
PROVIDED BY LAW.
MR. VILLEGAS. The Committee accepts the amendment. Commissioner Suarez
will give the background.
MR. JAMIR. Thank you.
THE PRESIDENT. Commissioner Suarez is recognized.
MR. SUAREZ. Thank you, Madam President.
Will Commissioner Jamir answer a few clarificatory questions?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. This particular portion of the section has reference to what was
popularly known before as service contracts, among other things, is that
correct?
MR. JAMIR. Yes, Madam President.
MR. SUAREZ. As it is formulated, the President may enter into service
contracts but subject to the guidelines that may be promulgated by Congress?
MR. JAMIR. That is correct.
MR. SUAREZ. Therefore, that aspect of negotiation and consummation will fall on
the President, not upon Congress?
MR. JAMIR. That is also correct, Madam President.
MR. SUAREZ. Except that all of these contracts, service or otherwise, must be
made strictly in accordance with guidelines prescribed by Congress?
MR. JAMIR. That is also correct.
MR. SUAREZ. And the Gentleman is thinking in terms of a law that uniformly
covers situations of the same nature?
MR. JAMIR. That is 100 percent correct.
MR. SUAREZ. I thank the Commissioner.
MR. JAMIR. Thank you very much.[44]
The following exchange leaves no doubt that the commissioners knew exactly what
they were dealing with: service contracts.
THE PRESIDENT. Commissioner Gascon is recognized.
MR. GASCON. Commissioner Jamir had proposed an amendment with regard to
special service contracts which was accepted by the Committee. Since the
Committee has accepted it, I would like to ask some questions.
THE PRESIDENT. Commissioner Gascon may proceed.
MR. GASCON. As it is proposed now, such service contracts will be entered into
by the President with the guidelines of a general law on service contract to be
enacted by Congress. Is that correct?
MR. VILLEGAS. The Commissioner is right, Madam President.
MR. GASCON. According to the original proposal, if the President were to enter
into a particular agreement, he would need the concurrence of Congress. Now
that it has been changed by the proposal of Commissioner Jamir in that
Congress will set the general law to which the President shall comply, the
President will, therefore, not need the concurrence of Congress every time he
enters into service contracts. Is that correct?
MR. VILLEGAS. That is right.
MR. GASCON. The proposed amendment of Commissioner Jamir is in indirect
contrast to my proposed amendment, so I would like to object and present my
proposed amendment to the body.

xxxxxxxxx

MR. GASCON. Yes, it will be up to the body.


I feel that the general law to be set by Congress as regard service contract
agreements which the President will enter into might be too general or since
we do not know the content yet of such a law, it might be that certain
agreements will be detrimental to the interest of the Filipinos. This is in direct
contrast to my proposal which provides that there be effective constraints in the
implementation of service contracts.
So instead of a general law to be passed by Congress to serve as a guideline to
the President when entering into service contract agreements, I propose that
every service contract entered into by the President would need the
concurrence of Congress, so as to assure the Filipinos of their interests with
regard to the issue in Section 3 on all lands of the public domain. My alternative
amendment, which we will discuss later, reads: THAT THE PRESIDENT SHALL
ENTER INTO SUCH AGREEMENTS ONLY WITH THE CONCURRENCE OF
TWO-THIRDS VOTE OF ALL THE MEMBERS OF CONGRESS SITTING
SEPARATELY.

xxxxxxxxx

MR. BENGZON. The reason we made that shift is that we realized the original
proposal could breed corruption. By the way, this is not just confined to service
contracts but also to financial assistance. If we are going to make every
single contract subject to the concurrence of Congress which, according to the
Commissioners amendment is the concurrence of two-thirds of Congress
voting separately then (1) there is a very great chance that each contract will be
different from another; and (2) there is a great temptation that it would breed
corruption because of the great lobbying that is going to happen. And we do not
want to subject our legislature to that.

Now, to answer the Commissioners apprehension, by general law, we do not mean statements of
motherhood. Congress can build all the restrictions that it wishes into that general law so that every
contract entered into by the President under that specific area will have to be uniform. The
President has no choice but to follow all the guidelines that will be provided by law.

MR. GASCON. But my basic problem is that we do not know as of yet the contents
of such a general law as to how much constraints there will be in it. And to my
mind, although the Committees contention that the regular concurrence from
Congress would subject Congress to extensive lobbying, I think that is a risk we
will have to take since Congress is a body of representatives of the people
whose membership will be changing regularly as there will be changing
circumstances every time certain agreements are made. It would be best then
to keep in tab and attuned to the interest of the Filipino people, whenever the
President enters into any agreement with regard to such an important matter
as technical or financial assistance for large-scale exploration,
development and utilization of natural resources or service contracts, the
peoples elected representatives should be on top of it.

xxxxxxxxx

MR. OPLE. Madam President, we do not need to suspend the session. If


Commissioner Gascon needs a few minutes, I can fill up the remaining time
while he completes his proposed amendment. I just wanted to ask
Commissioner Jamir whether he would entertain a minor amendment to his
amendment, and it reads as follows: THE PRESIDENT SHALL
SUBSEQUENTLY NOTIFY CONGRESS OF EVERY SERVICE
CONTRACT ENTERED INTO IN ACCORDANCE WITH THE GENERAL LAW.
I think the reason is, if I may state it briefly, as Commissioner Bengzon said,
Congress can always change the general law later on to conform to new
perceptions of standards that should be built into service contracts. But the
only way Congress can do this is if there were a notification requirement from
the Office of the President that such service contracts had been entered into,
subject then to the scrutiny of the Members of Congress. This pertains to a
situation where the service contracts are already entered into, and all that this
amendment seeks is the reporting requirement from the Office of the President.
Will Commissioner Jamir entertain that?
MR. JAMIR. I will gladly do so, if it is still within my power.
MR. VILLEGAS. Yes, the Committee accepts the amendment.

xxxxxxxxx
SR. TAN. Madam President, may I ask a question?
THE PRESIDENT. Commissioner Tan is recognized.
SR. TAN. Am I correct in thinking that the only difference between these
future service contracts and the past service contracts under Mr. Marcos is
the general law to be enacted by the legislature and the notification of
Congress by the President? That is the only difference, is it not?
MR. VILLEGAS. That is right.
SR. TAN. So those are the safeguards.
MR. VILLEGAS. Yes. There was no law at all governing service contracts before.
SR. TAN. Thank you, Madam President.[45]

More Than Mere Financial


and Technical Assistance
Entailed by the Agreements

The clear words of Commissioner Jose N. Nolledo quoted below explicitly and
eloquently demonstrate that the drafters knew that the agreements with foreign
corporations were going to entail not mere technical or financial assistance but,
rather, foreign investment in and management of an enterprise involved in large-scale
exploration, development and utilization of minerals, petroleum, and other mineral oils.
THE PRESIDENT. Commissioner Nolledo is recognized.
MR. NOLLEDO. Madam President, I have the permission of the Acting Floor
Leader to speak for only two minutes in favor of the amendment of
Commissioner Gascon.
THE PRESIDENT. Commissioner Nolledo may proceed.
MR. NOLLEDO. With due respect to the members of the Committee and
Commissioner Jamir, I am in favor of the objection of Commissioner Gascon.

Madam President, I was one of those who refused to sign the 1973 Constitution, and one of the
reasons is that there were many provisions in the Transitory Provisions therein that favored aliens. I
was shocked when I read a provision authorizing service contracts while we, in this Constitutional
Commission, provided for Filipino control of the economy. We are, therefore, providing for
exceptional instances where aliens may circumvent Filipino control of our economy. And one way
of circumventing the rule in favor of Filipino control of the economy is to recognize service
contracts.

As far as I am concerned, if I should have my own way, I am for the complete deletion of this
provision. However, we are presenting a compromise in the sense that we are requiring a two-
thirds vote of all the Members of Congress as a safeguard. I think we should not mistrust the future
Members of Congress by saying that the purpose of this provision is to avoid corruption. We cannot
claim that they are less patriotic than we are. I think the Members of this Commission should know
that entering into service contracts is an exception to the rule on protection of natural resources for
the interest of the nation, and therefore, being an exception it should be subject, whenever possible,
to stringent rules. It seems to me that we are liberalizing the rules in favor of aliens.

I say these things with a heavy heart, Madam President. I do not claim to be a nationalist, but I love
my country. Although we need investments, we must adopt safeguards that are truly reflective
of the sentiments of the people and not mere cosmetic safeguards as they now appear in the Jamir
amendment. (Applause)

Thank you, Madam President.[46]

Another excerpt, featuring then Commissioner (now Chief Justice) Hilario G. Davide
Jr., indicates the limitations of the scope of such service contracts -- they are valid only in
regard to minerals, petroleum and other mineral oils, not to all natural resources.
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. Thank you, Madam President. This is an amendment to the Jamir
amendment and also to the Ople amendment. I propose to delete NATURAL
RESOURCES and substitute it with the following: MINERALS, PETROLEUM
AND OTHER MINERAL OILS. On the Ople amendment, I propose to add: THE
NOTIFICATION TO CONGRESS SHALL BE WITHIN THIRTY DAYS FROM
THE EXECUTION OF THE SERVICE CONTRACT.
THE PRESIDENT. What does the Committee say with respect to the first
amendment in lieu of NATURAL RESOURCES?
MR. VILLEGAS. Could Commissioner Davide explain that?
MR. DAVIDE. Madam President, with the use of NATURAL RESOURCES here, it
would necessarily include all lands of the public domain, our marine resources,
forests, parks and so on. So we would like to limit the scope of these service
contracts to those areas really where these may be needed, the exploitation,
development and exploration of minerals, petroleum and other mineral oils. And
so, we believe that we should really, if we want to grant service contracts at
all, limit the same to only those particular areas where Filipino capital may
not be sufficient, and not to all natural resources.
MR. SUAREZ. Just a point of clarification again, Madam President. When the
Commissioner made those enumerations and specifications, I suppose he
deliberately did not include agricultural land?
MR. DAVIDE. That is precisely the reason we have to enumerate what these
resources are into which service contracts may enter. So, beyond the reach of
any service contract will be lands of the public domain, timberlands, forests,
marine resources, fauna and flora, wildlife and national parks.[47]
After the Jamir amendment was voted upon and approved by a vote of 21 to 10 with 2
abstentions, Commissioner Davide made the following statement, which is very relevant to
our quest:
THE PRESIDENT. Commissioner Davide is recognized.
MR. DAVIDE. I am very glad that Commissioner Padilla emphasized minerals,
petroleum and mineral oils. The Commission has just approved the possible
foreign entry into the development, exploration and utilization of these minerals,
petroleum and other mineral oils by virtue of the Jamir amendment. I voted in
favor of the Jamir amendment because it will eventually give way to vesting in
exclusively Filipino citizens and corporations wholly owned by Filipino citizens
the right to utilize the other natural resources. This means that as a matter of
policy, natural resources should be utilized and exploited only by Filipino
citizens or corporations wholly owned by such citizens. But by virtue of the
Jamir amendment, since we feel that Filipino capital may not be enough for the
development and utilization of minerals, petroleum and other mineral oils, the
President can enter into service contracts with foreign corporations precisely
for the development and utilization of such resources. And so, there is nothing
to fear that we will stagnate in the development of minerals, petroleum and
mineral oils because we now allow service contracts. x x x. [48]
The foregoing are mere fragments of the framers lengthy discussions of the provision
dealing with agreements x x x involving either technical or financial assistance, which
ultimately became paragraph 4 of Section 2 of Article XII of the Constitution. Beyond any
doubt, the members of the ConCom were actually debating about the martial-law-
era service contracts for which they were crafting appropriate safeguards.
In the voting that led to the approval of Article XII by the ConCom, the explanations
given by Commissioners Gascon, Garcia and Tadeo indicated that they had voted to reject
this provision on account of their objections to the constitutionalization of the service
contract concept.
Mr. Gascon said, I felt that if we would constitutionalize any provision on service
contracts, this should always be with the concurrence of Congress and not guided only
by a general law to be promulgated by Congress. [49] Mr. Garcia explained, Service
contracts are given constitutional legitimization in Sec. 3, even when they have been
proven to be inimical to the interests of the nation, providing, as they do, the legal
loophole for the exploitation of our natural resources for the benefit of foreign interests.
[50]
Likewise, Mr. Tadeo cited inter alia the fact that service contracts continued to subsist,
enabling foreign interests to benefit from our natural resources. [51] It was hardly likely that
these gentlemen would have objected so strenuously, had the provision called for
mere technical or financial assistance and nothing more.
The deliberations of the ConCom and some commissioners explanation of their votes
leave no room for doubt that the service contract concept precisely underpinned the
commissioners understanding of the agreements involving either technical or financial
assistance.
Summation of the
Concom Deliberations

At this point, we sum up the matters established, based on a careful reading of the
ConCom deliberations, as follows:
In their deliberations on what was to become paragraph 4, the framers used
the term service contracts in referring to agreements x x x involving either
technical or financial assistance.
They spoke of service contracts as the concept was understood in the 1973
Constitution.
It was obvious from their discussions that they were not about to ban or
eradicate service contracts.
Instead, they were plainly crafting provisions to put in place safeguards that
would eliminate or minimize the abuses prevalent during the marital law
regime. In brief, they were going to permit service contracts with foreign
corporations as contractors, but with safety measures to prevent abuses, as
an exception to the general norm established in the first paragraph of
Section 2 of Article XII. This provision reserves or limits to Filipino citizens --
and corporations at least 60 percent of which is owned by such citizens --
the exploration, development and utilization of natural resources.
This provision was prompted by the perceived insufficiency of Filipino capital
and the felt need for foreign investments in the EDU of minerals and
petroleum resources.
The framers for the most part debated about the sort of safeguards that
would be considered adequate and reasonable. But some of them, having
more radical leanings, wanted to ban service contracts altogether; for them,
the provision would permit aliens to exploit and benefit from the nations
natural resources, which they felt should be reserved only for Filipinos.
In the explanation of their votes, the individual commissioners were heard by
the entire body. They sounded off their individual opinions, openly
enunciated their philosophies, and supported or attacked the provisions with
fervor. Everyones viewpoint was heard.
In the final voting, the Article on the National Economy and Patrimony --
including paragraph 4 allowing service contracts with foreign corporations as
an exception to the general norm in paragraph 1 of Section 2 of the same
article -- was resoundingly approved by a vote of 32 to 7, with 2 abstentions.

Agreements Involving Technical


or Financial Assistance Are
Service Contracts With Safeguards
From the foregoing, we are impelled to conclude that the phrase agreements involving
either technical or financial assistance, referred to in paragraph 4, are in fact service
contracts. But unlike those of the 1973 variety, the new ones are between foreign
corporations acting as contractors on the one hand; and on the other, the government as
principal or owner of the works. In the new service contracts, the foreign contractors
provide capital, technology and technical know-how, and managerial expertise in the
creation and operation of large-scale mining/extractive enterprises; and the government,
through its agencies (DENR, MGB), actively exercises control and supervision over the
entire operation.
Such service contracts may be entered into only with respect to minerals, petroleum
and other mineral oils. The grant thereof is subject to several safeguards, among which
are these requirements:

(1) The service contract shall be crafted in accordance with a general law that will set standard or
uniform terms, conditions and requirements, presumably to attain a certain uniformity in provisions
and avoid the possible insertion of terms disadvantageous to the country.

(2) The President shall be the signatory for the government because, supposedly before an
agreement is presented to the President for signature, it will have been vetted several times over at
different levels to ensure that it conforms to law and can withstand public scrutiny.

(3) Within thirty days of the executed agreement, the President shall report it to Congress to give
that branch of government an opportunity to look over the agreement and interpose timely
objections, if any.

Use of the Record of the


ConCom to Ascertain Intent

At this juncture, we shall address, rather than gloss over, the use of the framers intent
approach, and the criticism hurled by petitioners who quote a ruling of this Court:

While it is permissible in this jurisdiction to consult the debates and proceedings of the
constitutional convention in order to arrive at the reason and purpose of the resulting Constitution,
resort thereto may be had only when other guides fail as said proceedings are powerless to vary the
terms of the Constitution when the meaning is clear. Debates in the constitutional convention are of
value as showing the views of the individual members, and as indicating the reason for their votes,
but they give us no light as to the views of the large majority who did not talk, much less the mass
of our fellow citizens whose votes at the polls gave that instrument the force of fundamental law.
We think it safer to construe the constitution from what appears upon its face. The proper
interpretation therefore depends more on how it was understood by the people adopting it than in
the framers understanding thereof.[52]

The notion that the deliberations reflect only the views of those members who spoke
out and not the views of the majority who remained silent should be clarified. We must
never forget that those who spoke out were heard by those who remained silent and did
not react. If the latter were silent because they happened not to be present at the time,
they are presumed to have read the minutes and kept abreast of the deliberations. By
remaining silent, they are deemed to have signified their assent to and/or conformity with
at least some of the views propounded or their lack of objections thereto. It was incumbent
upon them, as representatives of the entire Filipino people, to follow the deliberations
closely and to speak their minds on the matter if they did not see eye to eye with the
proponents of the draft provisions.
In any event, each and every one of the commissioners had the opportunity to speak
out and to vote on the matter. Moreover, the individual explanations of votes are on
record, and they show where each delegate stood on the issues. In sum, we cannot
completely denigrate the value or usefulness of the record of the ConCom, simply
because certain members chose not to speak out.
It is contended that the deliberations therein did not necessarily reflect the thinking of
the voting population that participated in the referendum and ratified the Constitution.
Verily, whether we like it or not, it is a bit too much to assume that every one of those who
voted to ratify the proposed Charter did so only after carefully reading and mulling over it,
provision by provision.
Likewise, it appears rather extravagant to assume that every one of those who did in
fact bother to read the draft Charter actually understood the import of its provisions, much
less analyzed it vis--vis the previous Constitutions. We believe that in reality, a good
percentage of those who voted in favor of it did so more out of faith and trust. For them, it
was the product of the hard work and careful deliberation of a group of intelligent,
dedicated and trustworthy men and women of integrity and conviction, whose love of
country and fidelity to duty could not be questioned.
In short, a large proportion of the voters voted yes because the drafters, or a majority
of them, endorsed the proposed Constitution. What this fact translates to is the
inescapable conclusion that many of the voters in the referendum did not form their own
isolated judgment about the draft Charter, much less about particular provisions therein.
They only relied or fell back and acted upon the favorable endorsement or
recommendation of the framers as a group. In other words, by voting yes, they may be
deemed to have signified their voluntary adoption of the understanding and interpretation
of the delegates with respect to the proposed Charter and its particular provisions. If its
good enough for them, its good enough for me; or, in many instances, If its good enough
for President Cory Aquino, its good enough for me.
And even for those who voted based on their own individual assessment of the
proposed Charter, there is no evidence available to indicate that their assessment or
understanding of its provisions was in fact different from that of the drafters. This unwritten
assumption seems to be petitioners as well. For all we know, this segment of voters must
have read and understood the provisions of the Constitution in the same way the framers
had, an assumption that would account for the favorable votes.
Fundamentally speaking, in the process of rewriting the Charter, the members of the
ConCom as a group were supposed to represent the entire Filipino people. Thus, we
cannot but regard their views as being very much indicative of the thinking of the people
with respect to the matters deliberated upon and to the Charter as a whole.
It is therefore reasonable and unavoidable to make the following conclusion,
based on the above arguments. As written by the framers and ratified and adopted
by the people, the Constitution allows the continued use of service contracts with
foreign corporations -- as contractors who would invest in and operate and manage
extractive enterprises, subject to the full control and supervision of the State --
sans the abuses of the past regime. The purpose is clear: to develop and utilize our
mineral, petroleum and other resources on a large scale for the immediate and
tangible benefit of the Filipino people.
In view of the foregoing discussion, we should reverse the Decision of January 27,
2004, and in fact now hold a view different from that of the Decision, which had these
findings: (a) paragraph 4 of Section 2 of Article XII limits foreign involvement in the local
mining industry to agreements strictly for either financial or technical assistance only; (b)
the same paragraph precludes agreements that grant to foreign corporations the
management of local mining operations, as such agreements are purportedly in the nature
of service contracts as these were understood under the 1973 Constitution; (c) these
service contracts were supposedly de-constitutionalized and proscribed by the omission of
the term service contracts from the 1987 Constitution; (d) since the WMCP FTAA contains
provisions permitting the foreign contractor to manage the concern, the said FTAA is
invalid for being a prohibited service contract; and (e) provisions of RA 7942 and DAO 96-
40, which likewise grant managerial authority to the foreign contractor, are also invalid and
unconstitutional.

Ultimate Test: States Control


Determinative of Constitutionality

But we are not yet at the end of our quest. Far from it. It seems that we are confronted
with a possible collision of constitutional provisions. On the one hand, paragraph 1 of
Section 2 of Article XII explicitly mandates the State to exercise full control and
supervision over the exploration, development and utilization of natural resources. On the
other hand, paragraph 4 permits safeguarded service contracts with foreign contractors.
Normally, pursuant thereto, the contractors exercise management prerogatives over the
mining operations and the enterprise as a whole. There is thus a legitimate ground to be
concerned that either the States full control and supervision may rule out any exercise of
management authority by the foreign contractor; or, the other way around, allowing the
foreign contractor full management prerogatives may ultimately negate the States full
control and supervision.

Ut Magis Valeat
Quam Pereat
Under the third principle of constitutional construction laid down in Francisco -- ut
magis valeat quam pereat -- every part of the Constitution is to be given effect, and the
Constitution is to be read and understood as a harmonious whole. Thus, full control and
supervision by the State must be understood as one that does not preclude the legitimate
exercise of management prerogatives by the foreign contractor. Before any further
discussion, we must stress the primacy and supremacy of the principle of sovereignty and
State control and supervision over all aspects of exploration, development and utilization
of the countrys natural resources, as mandated in the first paragraph of Section 2 of
Article XII.
But in the next breadth we have to point out that full control and supervision cannot be
taken literally to mean that the State controls and supervises everything involved, down to
the minutest details, and makes all decisions required in the mining operations. This
strained concept of control and supervision over the mining enterprise would render
impossible the legitimate exercise by the contractors of a reasonable degree of
management prerogative and authority necessary and indispensable to their proper
functioning.
For one thing, such an interpretation would discourage foreign entry into large-scale
exploration, development and utilization activities; and result in the unmitigated stagnation
of this sector, to the detriment of our nations development. This scenario renders
paragraph 4 inoperative and useless. And as respondents have correctly pointed out, the
government does not have to micro-manage the mining operations and dip its hands into
the day-to-day affairs of the enterprise in order for it to be considered as having full control
and supervision.
The concept of control adopted in Section 2 of Article XII must be taken to mean less
[53]

than dictatorial, all-encompassing control; but nevertheless sufficient to give the State the
power to direct, restrain, regulate and govern the affairs of the extractive enterprises.
Control by the State may be on a macro level, through the establishment of policies,
guidelines, regulations, industry standards and similar measures that would enable the
government to control the conduct of affairs in various enterprises and restrain activities
deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic
development and general welfare of the country, conserve the environment, and uplift the
well-being of the affected local communities. Such a concept of control would be
compatible with permitting the foreign contractor sufficient and reasonable management
authority over the enterprise it invested in, in order to ensure that it is operating efficiently
and profitably, to protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing
Rules enable the government to exercise that degree of control sufficient to direct
and regulate the conduct of affairs of individual enterprises and restrain
undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of
certain provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing
Rules and Regulations (DAO 96-40), as well as the WMCP FTAA.
Indeed, petitioners charge[54] that RA 7942, as well as its Implementing Rules and
Regulations, makes it possible for FTAA contracts to cede full control and management of
mining enterprises over to fully foreign-owned corporations, with the result that the State is
allegedly reduced to a passive regulator dependent on submitted plans and reports, with
weak review and audit powers. The State does not supposedly act as the owner of the
natural resources for and on behalf of the Filipino people; it practically has little effective
say in the decisions made by the enterprise. Petitioners then conclude that the law, the
implementing regulations, and the WMCP FTAA cede beneficial ownership of the mineral
resources to the foreign contractor.
A careful scrutiny of the provisions of RA 7942 and its Implementing Rules belies
petitioners claims. Paraphrasing the Constitution, Section 4 of the statute clearly affirms
the States control thus:

Sec. 4. Ownership of Mineral Resources. Mineral resources are owned by the State and the
exploration, development, utilization and processing thereof shall be under its full control and
supervision. The State may directly undertake such activities or it may enter into mineral
agreements with contractors.

The State shall recognize and protect the rights of the indigenous cultural communities to their
ancestral lands as provided for by the Constitution.

The aforequoted provision is substantively reiterated in Section 2 of DAO 96-40 as


follows:

Sec. 2. Declaration of Policy. All mineral resources in public and private lands within the territory
and exclusive economic zone of the Republic of the Philippines are owned by the State. It shall be
the responsibility of the State to promote their rational exploration, development, utilization and
conservation through the combined efforts of the Government and private sector in order to
enhance national growth in a way that effectively safeguards the environment and protects the
rights of affected communities.

Sufficient Control Over Mining


Operations Vested in the State
by RA 7942 and DAO 96-40

RA 7942 provides for the States control and supervision over mining operations. The
following provisions thereof establish the mechanism of inspection and visitorial rights
over mining operations and institute reportorial requirements in this manner:

1. Sec. 8 which provides for the DENRs power of over-all supervision and periodic review
for the conservation, management, development and proper use of the States mineral
resources;

2. Sec. 9 which authorizes the Mines and Geosciences Bureau (MGB) under the DENR to
exercise direct charge in the administration and disposition of mineral resources, and
empowers the MGB to monitor the compliance by the contractor of the terms and
conditions of the mineral agreements, confiscate surety and performance bonds, and
deputize whenever necessary any member or unit of the Phil. National Police,
barangay, duly registered non-governmental organization (NGO) or any qualified
person to police mining activities;

3. Sec. 66 which vests in the Regional Director exclusive jurisdiction over safety
inspections of all installations, whether surface or underground, utilized in mining
operations.

4. Sec. 35, which incorporates into all FTAAs the following terms, conditions and
warranties:

(g) Mining operations shall be conducted in accordance with the provisions of


the Act and its IRR.

(h) Work programs and minimum expenditures commitments.

xxxxxxxxx

(k) Requiring proponent to effectively use appropriate anti-pollution technology


and facilities to protect the environment and restore or rehabilitate mined-
out areas.

(l) The contractors shall furnish the Government records of geologic, accounting
and other relevant data for its mining operation, and that books of
accounts and records shall be open for inspection by the government. x x
x.

(m) Requiring the proponent to dispose of the minerals at the highest price and
more advantageous terms and conditions.

(n) x x x x x x x x x

(o) Such other terms and conditions consistent with the Constitution and with
this Act as the Secretary may deem to be for the best interest of the State
and the welfare of the Filipino people.

The foregoing provisions of Section 35 of RA 7942 are also reflected and implemented
in Section 56 (g), (h), (l), (m) and (n) of the Implementing Rules, DAO 96-40.
Moreover, RA 7942 and DAO 96-40 also provide various stipulations confirming the
governments control over mining enterprises:
The contractor is to relinquish to the government those portions of the contract
area not needed for mining operations and not covered by any declaration of
mining feasibility (Section 35-e, RA 7942; Section 60, DAO 96-40).
The contractor must comply with the provisions pertaining to mine safety, health
and environmental protection (Chapter XI, RA 7942; Chapters XV and XVI, DAO
96-40).
For violation of any of its terms and conditions, government may cancel an FTAA.
(Chapter XVII, RA 7942; Chapter XXIV, DAO 96-40).
An FTAA contractor is obliged to open its books of accounts and records for
inspection by the government (Section 56-m, DAO 96-40).
An FTAA contractor has to dispose of the minerals and by-products at the highest
market price and register with the MGB a copy of the sales agreement (Section
56-n, DAO 96-40).
MGB is mandated to monitor the contractors compliance with the terms and
conditions of the FTAA; and to deputize, when necessary, any member or unit of
the Philippine National Police, the barangay or a DENR-accredited
nongovernmental organization to police mining activities (Section 7-d and -f,
DAO 96-40).
An FTAA cannot be transferred or assigned without prior approval by the
President (Section 40, RA 7942; Section 66, DAO 96-40).
A mining project under an FTAA cannot proceed to the
construction/development/utilization stage, unless its Declaration of Mining
Project Feasibility has been approved by government (Section 24, RA 7942).
The Declaration of Mining Project Feasibility filed by the contractor cannot be
approved without submission of the following documents:
1. Approved mining project feasibility study (Section 53-d, DAO 96-40)
2. Approved three-year work program (Section 53-a-4, DAO 96-40)
3. Environmental compliance certificate (Section 70, RA 7942)
4. Approved environmental protection and enhancement program (Section
69, RA 7942)
5. Approval by the Sangguniang Panlalawigan/Bayan/Barangay (Section
70, RA 7942; Section 27, RA 7160)
6. Free and prior informed consent by the indigenous peoples concerned,
including payment of royalties through a Memorandum of Agreement
(Section 16, RA 7942; Section 59, RA 8371)
The FTAA contractor is obliged to assist in the development of its
mining community, promotion of the general welfare of its inhabitants, and
development of science and mining technology (Section 57, RA 7942).
The FTAA contractor is obliged to submit reports (on quarterly,
semi-annual or annual basis as the case may be; per Section 270, DAO 96-40),
pertaining to the following:
1. Exploration
2. Drilling
3. Mineral resources and reserves
4. Energy consumption
5. Production
6. Sales and marketing
7. Employment
8. Payment of taxes, royalties, fees and other Government Shares
9. Mine safety, health and environment
10. Land use
11. Social development
12. Explosives consumption
An FTAA pertaining to areas within government reservations
cannot be granted without a written clearance from the government agencies
concerned (Section 19, RA 7942; Section 54, DAO 96-40).
An FTAA contractor is required to post a financial guarantee bond
in favor of the government in an amount equivalent to its expenditures
obligations for any particular year. This requirement is apart from the
representations and warranties of the contractor that it has access to all the
financing, managerial and technical expertise and technology necessary to
carry out the objectives of the FTAA (Section 35-b, -e, and -f, RA 7942).
Other reports to be submitted by the contractor, as required under
DAO 96-40, are as follows: an environmental report on the rehabilitation of the
mined-out area and/or mine waste/tailing covered area, and anti-pollution
measures undertaken (Section 35-a-2); annual reports of the mining operations
and records of geologic accounting (Section 56-m); annual progress reports
and final report of exploration activities (Section 56-2).
Other programs required to be submitted by the contractor,
pursuant to DAO 96-40, are the following: a safety and health program (Section
144); an environmental work program (Section 168); an annual environmental
protection and enhancement program (Section 171).
The foregoing gamut of requirements, regulations, restrictions and limitations imposed
upon the FTAA contractor by the statute and regulations easily overturns petitioners
contention. The setup under RA 7942 and DAO 96-40 hardly relegates the State to the
role of a passive regulator dependent on submitted plans and reports. On the contrary, the
government agencies concerned are empowered to approve or disapprove -- hence, to
influence, direct and change -- the various work programs and the corresponding
minimum expenditure commitments for each of the exploration, development and
utilization phases of the mining enterprise.
Once these plans and reports are approved, the contractor is bound to comply with its
commitments therein. Figures for mineral production and sales are regularly monitored
and subjected to government review, in order to ensure that the products and by-products
are disposed of at the best prices possible; even copies of sales agreements have to be
submitted to and registered with MGB. And the contractor is mandated to open its books
of accounts and records for scrutiny, so as to enable the State to determine if the
government share has been fully paid.
The State may likewise compel the contractors compliance with mandatory
requirements on mine safety, health and environmental protection, and the use of anti-
pollution technology and facilities. Moreover, the contractor is also obligated to assist in
the development of the mining community and to pay royalties to the indigenous peoples
concerned.
Cancellation of the FTAA may be the penalty for violation of any of its terms and
conditions and/or noncompliance with statutes or regulations. This general, all-around,
multipurpose sanction is no trifling matter, especially to a contractor who may have yet to
recover the tens or hundreds of millions of dollars sunk into a mining project.
Overall, considering the provisions of the statute and the regulations just discussed,
we believe that the State definitely possesses the means by which it can have the ultimate
word in the operation of the enterprise, set directions and objectives, and detect deviations
and noncompliance by the contractor; likewise, it has the capability to enforce compliance
and to impose sanctions, should the occasion therefor arise.
In other words, the FTAA contractor is not free to do whatever it pleases and get
away with it; on the contrary, it will have to follow the government line if it wants to
stay in the enterprise. Ineluctably then, RA 7942 and DAO 96-40 vest in the
government more than a sufficient degree of control and supervision over the
conduct of mining operations.

Section 3(aq) of RA 7942


Not Unconstitutional

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

The Terms of the WMCP FTAA


A Deference to State Control

A perusal of the WMCP FTAA also reveals a slew of stipulations providing for State
control and supervision:
1. The contractor is obligated to account for the value of production and sale of
minerals (Clause 1.4).
2. The contractors work program, activities and budgets must be approved by/on
behalf of the State (Clause 2.1).
3. The DENR secretary has the power to extend the exploration period (Clause
3.2-a).
4. Approval by the State is necessary for incorporating lands into the FTAA contract
area (Clause 4.3-c).
5. The Bureau of Forest Development is vested with discretion in regard to
approving the inclusion of forest reserves as part of the FTAA contract area
(Clause 4.5).
6. The contractor is obliged to relinquish periodically parts of the contract area not
needed for exploration and development (Clause 4.6).
7. A Declaration of Mining Feasibility must be submitted for approval by the State
(Clause 4.6-b).
8. The contractor is obligated to report to the State its exploration activities (Clause
4.9).
9. The contractor is required to obtain State approval of its work programs for the
succeeding two-year periods, containing the proposed work activities and
expenditures budget related to exploration (Clause 5.1).
10. The contractor is required to obtain State approval for its proposed
expenditures for exploration activities (Clause 5.2).
11. The contractor is required to submit an annual report on geological,
geophysical, geochemical and other information relating to its explorations
within the FTAA area (Clause 5.3-a).
12. The contractor is to submit within six months after expiration of exploration
period a final report on all its findings in the contract area (Clause 5.3-b).
13. The contractor, after conducting feasibility studies, shall submit a declaration of
mining feasibility, along with a description of the area to be developed and
mined, a description of the proposed mining operations and the technology to
be employed, and a proposed work program for the development phase, for
approval by the DENR secretary (Clause 5.4).
14. The contractor is obliged to complete the development of the mine, including
construction of the production facilities, within the period stated in the approved
work program (Clause 6.1).
15. The contractor is obligated to submit for approval of the DENR secretary a
work program covering each period of three fiscal years (Clause 6.2).
16. The contractor is to submit reports to the DENR secretary on the production,
ore reserves, work accomplished and work in progress, profile of its work force
and management staff, and other technical information (Clause 6.3).
17. Any expansions, modifications, improvements and replacements of mining
facilities shall be subject to the approval of the secretary (Clause 6.4).
18. The State has control with respect to the amount of funds that the contractor
may borrow within the Philippines (Clause 7.2).
19. The State has supervisory power with respect to technical, financial and
marketing issues (Clause 10.1-a).
20. The contractor is required to ensure 60 percent Filipino equity in the contractor,
within ten years of recovering specified expenditures, unless not so required by
subsequent legislation (Clause 10.1).
21. The State has the right to terminate the FTAA for the contractors unremedied
substantial breach thereof (Clause 13.2);
22. The States approval is needed for any assignment of the FTAA by the
contractor to an entity other than an affiliate (Clause 14.1).
We should elaborate a little on the work programs and budgets, and what they mean
with respect to the States ability to exercise full control and effective supervision over the
enterprise. For instance, throughout the initial five-year exploration and feasibility phase of
the project, the contractor is mandated by Clause 5.1 of the WMCP FTAA to submit a
series of work programs (copy furnished the director of MGB) to the DENR secretary
for approval. The programs will detail the contractors proposed exploration activities and
budget covering each subsequent period of two fiscal years.
In other words, the concerned government officials will be informed beforehand of the
proposed exploration activities and expenditures of the contractor for each succeeding
two-year period, with the right to approve/disapprove them or require changes or
adjustments therein if deemed necessary.
Likewise, under Clause 5.2(a), the amount that the contractor was supposed to spend
for exploration activities during the first contract year of the exploration period was fixed at
not less than P24 million; and then for the succeeding years, the amount shall be as
agreed between the DENR secretary and the contractor prior to the commencement of
each subsequent fiscal year. If no such agreement is arrived upon, the previous years
expenditure commitment shall apply.
This provision alone grants the government through the DENR secretary a very big
say in the exploration phase of the project. This fact is not something to be taken lightly,
considering that the government has absolutely no contribution to the exploration
expenditures or work activities and yet is given veto power over such a critical aspect of
the project. We cannot but construe as very significant such a degree of control over the
project and, resultantly, over the mining enterprise itself.
Following its exploration activities or feasibility studies, if the contractor believes that
any part of the contract area is likely to contain an economic mineral resource, it shall
submit to the DENR secretary a declaration of mining feasibility (per Clause 5.4 of the
FTAA), together with a technical description of the area delineated for development and
production, a description of the proposed mining operations including the technology to be
used, a work program for development, an environmental impact statement, and a
description of the contributions to the economic and general welfare of the country to be
generated by the mining operations (pursuant to Clause 5.5).
The work program for development is subject to the approval of the DENR
secretary. Upon its approval, the contractor must comply with it and complete the
development of the mine, including the construction of production facilities and installation
of machinery and equipment, within the period provided in the approved work program for
development (per Clause 6.1).
Thus, notably, the development phase of the project is likewise subject to the control
and supervision of the government. It cannot be emphasized enough that the proper and
timely construction and deployment of the production facilities and the development of the
mine are of pivotal significance to the success of the mining venture. Any missteps here
will potentially be very costly to remedy. Hence, the submission of the work program for
development to the DENR secretary for approval is particularly noteworthy, considering
that so many millions of dollars worth of investments -- courtesy of the contractor -- are
made to depend on the States consideration and action.
Throughout the operating period, the contractor is required to submit to the DENR
secretary for approval, copy furnished the director of MGB, work programs covering each
period of three fiscal years (per Clause 6.2). During the same period (per Clause 6.3), the
contractor is mandated to submit various quarterly and annual reports to the DENR
secretary, copy furnished the director of MGB, on the tonnages of production in terms of
ores and concentrates, with corresponding grades, values and destinations; reports of
sales; total ore reserves, total tonnage of ores, work accomplished and work in progress
(installations and facilities related to mining operations), investments made or committed,
and so on and so forth.
Under Section VIII, during the period of mining operations, the contractor is also
required to submit to the DENR secretary (copy furnished the director of MGB) the work
program and corresponding budget for the contract area, describing the mining operations
that are proposed to be carried out during the period covered. The secretary is, of course,
entitled to grant or deny approval of any work program or budget and/or propose revisions
thereto. Once the program/budget has been approved, the contractor shall comply
therewith.
In sum, the above provisions of the WMCP FTAA taken together, far from constituting
a surrender of control and a grant of beneficial ownership of mineral resources to the
contractor in question, bestow upon the State more than adequate control and
supervision over the activities of the contractor and the enterprise.

No Surrender of Control
Under the WMCP FTAA

Petitioners, however, take aim at Clause 8.2, 8.3, and 8.5 of the WMCP FTAA which,
they say, amount to a relinquishment of control by the State, since it cannot truly impose
its own discretion in respect of the submitted work programs.
8.2. The Secretary shall be deemed to have approved any Work Programme or
Budget or variation thereof submitted by the Contractor unless within sixty
(60) days after submission by the Contractor the Secretary gives notice
declining such approval or proposing a revision of certain features and
specifying its reasons therefor (the Rejection Notice).
8.3. If the Secretary gives a Rejection Notice, the Parties shall promptly meet and
endeavor to agree on amendments to the Work Programme or Budget. If the
Secretary and the Contractor fail to agree on the proposed revision within 30
days from delivery of the Rejection Notice then the Work Programme or
Budget or variation thereof proposed by the Contractor shall be deemed
approved, so as not to unnecessarily delay the performance of the
Agreement.
8.4. x x x x x x x x x
8.5. So far as is practicable, the Contractor shall comply with any approved Work
Programme and Budget. It is recognized by the Secretary and the Contractor
that the details of any Work Programmes or Budgets may require changes in
the light of changing circumstances. The Contractor may make such changes
without approval of the Secretary provided they do not change the general
objective of any Work Programme, nor entail a downward variance of more
than twenty per centum (20percent) of the relevant Budget. All other
variations to an approved Work Programme or Budget shall be submitted for
approval of the Secretary.
From the provisions quoted above, petitioners generalize by asserting that the
government does not participate in making critical decisions regarding the operations of
the mining firm. Furthermore, while the State can require the submission of work programs
and budgets, the decision of the contractor will still prevail, if the parties have a difference
of opinion with regard to matters affecting operations and management.
We hold, however, that the foregoing provisions do not manifest a relinquishment of
control. For instance, Clause 8.2 merely provides a mechanism for preventing the
business or mining operations from grinding to a complete halt as a result of possibly
over-long and unjustified delays in the governments handling, processing and approval of
submitted work programs and budgets. Anyway, the provision does give the DENR
secretary more than sufficient time (60 days) to react to submitted work programs and
budgets. It cannot be supposed that proper grounds for objecting thereto, if any exist,
cannot be discovered within a period of two months.
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the
event a disagreement over the submitted work program or budget arises between the
State and the contractor and results in a stalemate or impasse, in order that there will be
no unreasonably long delays in the performance of the works.
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither does
it follow that the government will inexorably be aggrieved if and when these temporary
remedies come into play. First, avoidance of long delays in these situations will
undoubtedly redound to the benefit of the State as well as the contractor. Second, who is
to say that the work program or budget proposed by the contractor and deemed approved
under Clause 8.3 would not be the better or more reasonable or more effective
alternative? The contractor, being the insider, as it were, may be said to be in a better
position than the State -- an outsider looking in -- to determine what work program or
budget would be appropriate, more effective, or more suitable under the circumstances.
All things considered, we take exception to the characterization of the DENR secretary
as a subservient nonentity whom the contractor can overrule at will, on account of Clause
8.3. And neither is it true that under the same clause, the DENR secretary has no authority
whatsoever to disapprove the work program. As Respondent WMCP reasoned in its
Reply-Memorandum, the State -- despite Clause 8.3 -- still has control over the contract
area and it may, as sovereign authority, prohibit work thereon until the dispute is resolved.
And ultimately, the State may terminate the agreement, pursuant to Clause 13.2 of the
same FTAA, citing substantial breach thereof. Hence, it clearly retains full and effective
control of the exploitation of the mineral resources.
On the other hand, Clause 8.5 is merely an acknowledgment of the parties need for
flexibility, given that no one can accurately forecast under all circumstances, or predict
how situations may change. Hence, while approved work programs and budgets are to be
followed and complied with as far as practicable, there may be instances in which
changes will have to be effected, and effected rapidly, since events may take shape and
unfold with suddenness and urgency. Thus, Clause 8.5 allows the contractor to move
ahead and make changes without the express or implicit approval of the DENR secretary.
Such changes are, however, subject to certain conditions that will serve to limit or restrict
the variance and prevent the contractor from straying very far from what has been
approved.
Clause 8.5 provides the contractor a certain amount of flexibility to meet unexpected
situations, while still guaranteeing that the approved work programs and budgets are not
abandoned altogether. Clause 8.5 does not constitute proof that the State has
relinquished control. And ultimately, should there be disagreement with the actions taken
by the contractor in this instance as well as under Clause 8.3 discussed above, the DENR
secretary may resort to cancellation/termination of the FTAA as the ultimate sanction.

Discretion to Select Contract


Area Not an Abdication of Control

Next, petitioners complain that the contractor has full discretion to select -- and the
government has no say whatsoever as to -- the parts of the contract area to be
relinquished pursuant to Clause 4.6 of the WMCP FTAA. [56] This clause, however, does not
constitute abdication of control. Rather, it is a mere acknowledgment of the fact that the
contractor will have determined, after appropriate exploration works, which portions of the
contract area do not contain minerals in commercial quantities sufficient to justify
developing the same and ought therefore to be relinquished. The State cannot just
substitute its judgment for that of the contractor and dictate upon the latter which areas to
give up.
Moreover, we can be certain that the contractors self-interest will propel proper and
efficient relinquishment. According to private respondent,[57] a mining company tries to
relinquish as much non-mineral areas as soon as possible, because the annual occupation
fees paid to the government are based on the total hectarage of the contract area, net of the
areas relinquished. Thus, the larger the remaining area, the heftier the amount of occupation
fees to be paid by the contractor. Accordingly, relinquishment is not an issue, given that the
contractor will not want to pay the annual occupation fees on the non-mineral parts of its
contract area. Neither will it want to relinquish promising sites, which other contractors may
subsequently pick up.

Government Not
a Subcontractor

Petitioners further maintain that the contractor can compel the government to exercise
its power of eminent domain to acquire surface areas within the contract area for the
contractors use. Clause 10.2 (e) of the WMCP FTAA provides that the government agrees
that the contractor shall (e) have the right to require the Government at the Contractors
own cost, to purchase or acquire surface areas for and on behalf of the Contractor at such
price and terms as may be acceptable to the contractor. At the termination of this
Agreement such areas shall be sold by public auction or tender and the Contractor shall
be entitled to reimbursement of the costs of acquisition and maintenance, adjusted for
inflation, from the proceeds of sale.
According to petitioners, government becomes a subcontractor to the contractor and
may, on account of this provision, be compelled to make use of its power of eminent
domain, not for public purposes but on behalf of a private party, i.e., the
contractor. Moreover, the power of the courts to determine the amount corresponding to
the constitutional requirement of just compensation has allegedly also been contracted
away by the government, on account of the latters commitment that the acquisition shall
be at such terms as may be acceptable to the contractor.
However, private respondent has proffered a logical explanation for the provision.
Section 10.2(e) contemplates a situation applicable to foreign-owned corporations.
[58]

WMCP, at the time of the execution of the FTAA, was a foreign-owned corporation and
therefore not qualified to own land. As contractor, it has at some future date to construct
the infrastructure -- the mine processing plant, the camp site, the tailings dam, and other
infrastructure -- needed for the large-scale mining operations. It will then have to identify
and pinpoint, within the FTAA contract area, the particular surface areas with favorable
topography deemed ideal for such infrastructure and will need to acquire the surface
rights. The State owns the mineral deposits in the earth, and is also qualified to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor,
disqualified to own land, identifies to the government the specific surface areas within the
FTAA contract area to be acquired for the mine infrastructure. The government then
acquires ownership of the surface land areas on behalf of the contractor, in order to
enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the
provision allows it, after termination of the FTAA, to be reimbursed from proceeds of the
sale of the surface areas, which the government will dispose of through public bidding. It
should be noted that this provision will not be applicable to Sagittarius as the present
FTAA contractor, since it is a Filipino corporation qualified to own and hold land. As such, it
may therefore freely negotiate with the surface rights owners and acquire the surface
property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without being
aware of the rationale for the said provision. That provision does not call for the exercise
of the power of eminent domain -- and determination of just compensation is not an issue
-- as much as it calls for a qualified party to acquire the surface rights on behalf of a
foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having the
State do the purchasing is a better alternative. This will at least cause the government to
be aware of such transaction/s and foster transparency in the contractors dealings with
the local property owners. The government, then, will not act as a subcontractor of the
contractor; rather, it will facilitate the transaction and enable the parties to avoid a
technical violation of the Anti-Dummy Law.

Absence of Provision
Requiring Sale at Posted
Prices Not Problematic

The supposed absence of any provision in the WMCP FTAA directly and explicitly
requiring the contractor to sell the mineral products at posted or market prices is not a
problem. Apart from Clause 1.4 of the FTAA obligating the contractor to account for the
total value of mineral production and the sale of minerals, we can also look to Section 35
of RA 7942, which incorporates into all FTAAs certain terms, conditions and warranties,
including the following:
(l) The contractors shall furnish the Government records of geologic, accounting
and other relevant data for its mining operation, and that books of accounts
and records shall be open for inspection by the government. x x x
(m) Requiring the proponent to dispose of the minerals at the highest price and
more advantageous terms and conditions.
For that matter, Section 56(n) of DAO 99-56 specifically obligates an FTAA contractor
to dispose of the minerals and by-products at the highest market price and to register with
the MGB a copy of the sales agreement. After all, the provisions of prevailing statutes as
well as rules and regulations are deemed written into contracts.

Contractors Right to Mortgage


Not Objectionable Per Se
Petitioners also question the absolute right of the contractor under Clause 10.2 (l) to
mortgage and encumber not only its rights and interests in the FTAA and the infrastructure
and improvements introduced, but also the mineral products extracted. Private
respondents do not touch on this matter, but we believe that this provision may have to do
with the conditions imposed by the creditor-banks of the then foreign contractor WMCP to
secure the lendings made or to be made to the latter. Ordinarily, banks lend not only on
the security of mortgages on fixed assets, but also on encumbrances of goods
produced that can easily be sold and converted into cash that can be applied to the
repayment of loans. Banks even lend on the security of accounts receivable that are
collectible within 90 days.[59]
It is not uncommon to find that a debtor corporation has executed deeds of assignment
by way of security over the production for the next twelve months and/or the proceeds of
the sale thereof -- or the corresponding accounts receivable, if sold on terms -- in favor of
its creditor-banks. Such deeds may include authorizing the creditors to sell the products
themselves and to collect the sales proceeds and/or the accounts receivable.
Seen in this context, Clause 10.2(l) is not something out of the ordinary or
objectionable. In any case, as will be explained below, even if it is allowed to mortgage or
encumber the mineral end-products themselves, the contractor is not freed of its obligation
to pay the government its basic and additional shares in the net mining revenue, which is
the essential thing to consider.
In brief, the alarum raised over the contractors right to mortgage the minerals is simply
unwarranted. Just the same, the contractor must account for the value of mineral
production and the sales proceeds therefrom. Likewise, under the WMCP FTAA, the
government remains entitled to its sixty percent share in the net mining revenues of the
contractor. The latters right to mortgage the minerals does not negate the States right to
receive its share of net mining revenues.

Shareholders Free
to Sell Their Stocks

Petitioners likewise criticize Clause 10.2(k), which gives the contractor authority to
change its equity structure at any time. This provision may seem somewhat unusual, but
considering that WMCP then was 100 percent foreign-owned, any change would mean
that such percentage would either stay unaltered or be decreased in favor of Filipino
ownership. Moreover, the foreign-held shares may change hands freely. Such eventuality
is as it should be.
We believe it is not necessary for government to attempt to limit or restrict the freedom
of the shareholders in the contractor to freely transfer, dispose of or encumber their
shareholdings, consonant with the unfettered exercise of their business judgment and
discretion. Rather, what is critical is that, regardless of the identity, nationality and
percentage ownership of the various shareholders of the contractor -- and regardless of
whether these shareholders decide to take the company public, float bonds and other
fixed-income instruments, or allow the creditor-banks to take an equity position in the
company -- the foreign-owned contractor is always in a position to render the services
required under the FTAA, under the direction and control of the government.

Contractors Right to Ask


For Amendment Not Absolute

With respect to Clauses 10.4(e) and (i), petitioners complain that these provisions bind
government to allow amendments to the FTAA if required by banks and other financial
institutions as part of the conditions for new lendings. However, we do not find anything
wrong with Clause 10.4(e), which only states that if the Contractor seeks to obtain
financing contemplated herein from banks or other financial institutions, (the Government
shall) cooperate with the Contractor in such efforts provided that such financing
arrangements will in no event reduce the Contractors obligations or the Governments
rights hereunder. The colatilla obviously safeguards the States interests; if breached, it will
give the government cause to object to the proposed amendments.
On the other hand, Clause 10.4(i) provides that the Government shall favourably
consider any request from [the] Contractor for amendments of this Agreement which are
necessary in order for the Contractor to successfully obtain the financing. Petitioners see
in this provision a complete renunciation of control. We disagree.
The proviso does not say that the government shall grant any request for amendment.
Clause 10.4(i) only obliges the State to favorably consider any such request, which is not
at all unreasonable, as it is not equivalent to saying that the government must
automatically consent to it. This provision should be read together with the rest of the
FTAA provisions instituting government control and supervision over the mining enterprise.
The clause should not be given an interpretation that enables the contractor to wiggle out
of the restrictions imposed upon it by merely suggesting that certain amendments are
requested by the lenders.
Rather, it is up to the contractor to prove to the government that the requested
changes to the FTAA are indispensable, as they enable the contractor to obtain the
needed financing; that without such contract changes, the funders would absolutely refuse
to extend the loan; that there are no other sources of financing available to the contractor
(a very unlikely scenario); and that without the needed financing, the execution of the work
programs will not proceed. But the bottom line is, in the exercise of its power of control,
the government has the final say on whether to approve or disapprove such requested
amendments to the FTAA. In short, approval thereof is not mandatory on the part of the
government.
In fine, the foregoing evaluation and analysis of the aforementioned FTAA
provisions sufficiently overturns petitioners litany of objections to and criticisms of
the States alleged lack of control.

Financial Benefits Not


Surrendered to the Contractor
One of the main reasons certain provisions of RA 7942 were struck down was the
finding mentioned in the Decision that beneficial ownership of the mineral resources had
been conveyed to the contractor. This finding was based on the underlying assumption,
common to the said provisions, that the foreign contractor manages the mineral resources
in the same way that foreign contractors in service contracts used to. By allowing foreign
contractors to manage or operate all the aspects of the mining operation, the above-cited
provisions of R.A. No. 7942 have in effect conveyed beneficial ownership over the
nations mineral resources to these contractors, leaving the State with nothing but bare
title thereto.[60] As the WMCP FTAA contained similar provisions deemed by the ponente to
be abhorrent to the Constitution, the Decision struck down the Contract as well.
Beneficial ownership has been defined as ownership recognized by law and capable
of being enforced in the courts at the suit of the beneficial owner. [61] Blacks Law
Dictionary indicates that the term is used in two senses: first, to indicate the interest of a
beneficiary in trust property (also called equitable ownership); and second, to refer to the
power of a corporate shareholder to buy or sell the shares, though the shareholder is not
registered in the corporations books as the owner.[62] Usually, beneficial ownership is
distinguished from naked ownership, which is the enjoyment of all the benefits and
privileges of ownership, as against possession of the bare title to property.
An assiduous examination of the WMCP FTAA uncovers no indication that it confers
upon WMCP ownership, beneficial or otherwise, of the mining property it is to develop, the
minerals to be produced, or the proceeds of their sale, which can be legally asserted and
enforced as against the State.
As public respondents correctly point out, any interest the contractor may have in the
proceeds of the mining operation is merely the equivalent of the consideration the
government has undertaken to pay for its services. All lawful contracts require such mutual
prestations, and the WMCP FTAA is no different. The contractor commits to perform
certain services for the government in respect of the mining operation, and in turn it is to
be compensated out of the net mining revenues generated from the sale of mineral
products. What would be objectionable is a contractual provision that unduly benefits the
contractor far in excess of the service rendered or value delivered, if any, in exchange
therefor.
A careful perusal of the statute itself and its implementing rules reveals that neither RA
7942 nor DAO 99-56 can be said to convey beneficial ownership of any mineral resource
or product to any foreign FTAA contractor.

Equitable Sharing
of Financial Benefits

On the contrary, DAO 99-56, entitled Guidelines Establishing the Fiscal Regime of
Financial or Technical Assistance Agreements aims to ensure an equitable sharing of the
benefits derived from mineral resources. These benefits are to be equitably shared among
the government (national and local), the FTAA contractor, and the affected communities.
The purpose is to ensure sustainable mineral resources development; and a fair,
equitable, competitive and stable investment regime for the large-scale exploration,
development and commercial utilization of minerals. The general framework or concept
followed in crafting the fiscal regime of the FTAA is based on the principle that the
government expects real contributions to the economic growth and general welfare of the
country, while the contractor expects a reasonable return on its investments in the project.
[63]

Specifically, under the fiscal regime, the governments expectation is, inter alia, the
receipt of its share from the taxes and fees normally paid by a mining enterprise. On the
other hand, the FTAA contractor is granted by the government certain fiscal and non-fiscal
incentives[64] to help support the formers cash flow during the most critical phase (cost
recovery) and to make the Philippines competitive with other mineral-producing countries.
After the contractor has recovered its initial investment, it will pay all the normal taxes and
fees comprising the basic share of the government, plus an additional share for the
government based on the options and formulae set forth in DAO 99-56.
The said DAO spells out the financial benefits the government will receive from an
FTAA, referred to as the Government Share, composed of a basic government
share and an additional government share.
The basic government share is comprised of all direct taxes, fees and royalties, as
well as other payments made by the contractor during the term of the FTAA. These are
amounts paid directly to (i) the national government (through the Bureau of Internal
Revenue, Bureau of Customs, Mines & Geosciences Bureau and other national
government agencies imposing taxes or fees), (ii) the local government units where the
mining activity is conducted, and (iii) persons and communities directly affected by the
mining project. The major taxes and other payments constituting the basic government
share are enumerated below:[65]
Payments to the National Government:
Excise tax on minerals - 2 percent of the gross output of mining operations
Contractor income tax - maximum of 32 percent of taxable income for
corporations
Customs duties and fees on imported capital equipment -the rate is set by the
Tariff and Customs Code (3-7 percent for chemicals; 3-10 percent for
explosives; 3-15 percent for mechanical and electrical equipment; and 3-10
percent for vehicles, aircraft and vessels
VAT on imported equipment, goods and services 10 percent of value
Royalties due the government on minerals extracted from mineral
reservations, if applicable 5 percent of the actual market value of the
minerals produced
Documentary stamp tax - the rate depends on the type of transaction
Capital gains tax on traded stocks - 5 to 10 percent of the value of the shares
Withholding tax on interest payments on foreign loans -15 percent of the
amount of interest
Withholding tax on dividend payments to foreign stockholders 15 percent of
the dividend
Wharfage and port fees
Licensing fees (for example, radio permit, firearms permit, professional fees)
Other national taxes and fees.
Payments to Local Governments:
Local business tax - a maximum of 2 percent of gross sales or receipts (the
rate varies among local government units)
Real property tax - 2 percent of the fair market value of the property, based
on an assessment level set by the local government
Special education levy - 1 percent of the basis used for the real property tax
Occupation fees - PhP50 per hectare per year; PhP100 per hectare per year
if located in a mineral reservation
Community tax - maximum of PhP10,500 per year
All other local government taxes, fees and imposts as of the effective date of
the FTAA - the rate and the type depend on the local government
Other Payments:
Royalty to indigenous cultural communities, if any 1 percent of gross output
from mining operations
Special allowance - payment to claim owners and surface rights holders
Apart from the basic share, an additional government share is also collected from
the FTAA contractor in accordance with the second paragraph of Section 81 of RA 7942,
which provides that the government share shall be comprised of, among other
things, certain taxes, duties and fees. The subject proviso reads:

The Government share in a financial or technical assistance agreement shall consist of, among
other things, the contractors corporate income tax, excise tax, special allowance, withholding tax
due from the contractors foreign stockholders arising from dividend or interest payments to the
said foreign stockholder in case of a foreign national, and all such other taxes, duties and fees as
provided for under existing laws. (Bold types supplied.)

The government, through the DENR and the MGB, has interpreted the insertion of the
phrase among other things as signifying that the government is entitled to an additional
government share to be paid by the contractor apart from the basic share, in order to
attain a fifty-fifty sharing of net benefits from mining.
The additional government share is computed by using one of three options or
schemes presented in DAO 99-56: (1) a fifty-fifty sharing in the cumulative present value
of cash flows; (2) the share based on excess profits; and (3) the sharing based on the
cumulative net mining revenue. The particular formula to be applied will be selected by the
contractor, with a written notice to the government prior to the commencement of the
development and construction phase of the mining project.[66]
Proceeds from the government shares arising from an FTAA contract are distributed to
and received by the different levels of government in the following proportions:
National Government 50 percent
Provincial Government 10 percent
Municipal Government 20 percent
Affected Barangays 20 percent
The portion of revenues remaining after the deduction of the basic and additional
government shares is what goes to the contractor.

Governments Share in an
FTAA Not Consisting Solely
of Taxes, Duties and Fees

In connection with the foregoing discussion on the basic and additional


government shares, it is pertinent at this juncture to mention the criticism leveled at the
second paragraph of Section 81 of RA 7942, quoted earlier. The said proviso has been
denounced, because, allegedly, the States share in FTAAs with foreign contractors has
been limited to taxes, fees and duties only; in effect, the State has been deprived of
a share in the after-tax income of the enterprise. In the face of this allegation, one has to
consider that the law does not define the term among other things; and the Office of the
Solicitor General, in its Motion for Reconsideration, appears to have erroneously claimed
that the phrase refers to indirect taxes.
The law provides no definition of the term among other things, for the reason that
Congress deliberately avoided setting unnecessary limitations as to what may constitute
compensation to the State for the exploitation and use of mineral resources. But the
inclusion of that phrase clearly and unmistakably reveals the legislative intent to have the
State collect more than just the usual taxes, duties and fees. Certainly, there is nothing in
that phrase -- or in the second paragraph of Section 81 -- that would suggest that such
phrase should be interpreted as referring only to taxes, duties, fees and the like.
Precisely for that reason, to fulfill the legislative intent behind the inclusion of the
phrase among other things in the second paragraph of Section 81, [67] the DENR structured
and formulated in DAO 99-56 the said additional government share. Such a share was
to consist not of taxes, but of a share in the earnings or cash flows of the mining
enterprise. The additional government share was to be paid by the contractor on top of
the basic share, so as to achieve a fifty-fifty sharing -- between the government and the
contractor -- of net benefits from mining. In the Ramos-DeVera paper, the explanation of
the three options or formulas[68] -- presented in DAO 99-56 for the computation of the
additional government share -- serves to debunk the claim that the governments take from
an FTAA consists solely of taxes, fees and duties.
Unfortunately, the Office of the Solicitor General -- although in possession of the
relevant data -- failed to fully replicate or echo the pertinent elucidation in the Ramos-
DeVera paper regarding the three schemes or options for computing the additional
government share presented in DAO 99-56. Had due care been taken by the OSG, the
Court would have been duly apprised of the real nature and particulars of the additional
share.
But, perhaps, on account of the esoteric discussion in the Ramos-DeVera paper, and
the even more abstruse mathematical jargon employed in DAO 99-56, the OSG omitted
any mention of the three options. Instead, the OSG skipped to a side discussion of the
effect of indirect taxes, which had nothing at all to do with the additional government
share, to begin with. Unfortunately, this move created the wrong impression, pointed out in
Justice Antonio T. Carpios Opinion, that the OSG had taken the position that the additional
government share consisted of indirect taxes.
In any event, what is quite evident is the fact that the additional government
share, as formulated, has nothing to do with taxes -- direct or indirect -- or with duties,
fees or charges. To repeat, it is over and above the basic government share composed of
taxes and duties. Simply put, the additional share may be (a) an amount that will result in
a 50-50 sharing of the cumulative present value of the cash flows[69] of the enterprise; (b)
an amount equivalent to 25 percent of the additional or excess profits of the enterprise,
reckoned against a benchmark return on investments; or (c) an amount that will result in a
fifty-fifty sharing of the cumulative net mining revenue from the end of the recovery period
up to the taxable year in question. The contractor is required to select one of the three
options or formulae for computing the additional share, an option it will apply to all of its
mining operations.
As used above, net mining revenue is defined as the gross output from mining
operations for a calendar year, less deductible expenses (inclusive of taxes, duties and
fees). Such revenue would roughly be equivalent to taxable income or income before
income tax. Definitely, as compared with, say, calculating the additional government
share on the basis of net income (after income tax), the net mining revenue is a better
and much more reasonable basis for such computation, as it gives a truer picture of the
profitability of the company.
To demonstrate that the three options or formulations will operate as intended, Messrs.
Ramos and de Vera also performed some quantifications of the government share via a
financial modeling of each of the three options discussed above. They found that the
government would get the highest share from the option that is based on the net mining
revenue, as compared with the other two options, considering only the basic and the
additional shares; and that, even though production rate decreases, the government share
will actually increase when the net mining revenue and the additional profit-based options
are used.
Furthermore, it should be noted that the three options or formulae do not yet take into
account the indirect taxes[70] and other financial contributions[71] of mining projects. These
indirect taxes and other contributions are real and actual benefits enjoyed by the Filipino
people and/or government. Now, if some of the quantifiable items are taken into account in
the computations, the financial modeling would show that the total government share
increases to 60 percent or higher -- in one instance, as much as 77 percent and even 89
percent -- of the net present value of total benefits from the project. As noted in the
Ramos-DeVera paper, these results are not at all shabby, considering that the contractor
puts in all the capital requirements and assumes all the risks, without the government
having to contribute or risk anything.
Despite the foregoing explanation, Justice Carpio still insisted during the Courts
deliberations that the phrase among other things refers only to taxes, duties and fees. We
are bewildered by his position. On the one hand, he condemns the Mining Law for
allegedly limiting the governments benefits only to taxes, duties and fees; and on the
other, he refuses to allow the State to benefit from the correct and proper interpretation of
the DENR/MGB. To remove all doubts then, we hold that the States share is not limited to
taxes, duties and fees only and that the DENR/MGB interpretation of the phrase among
other things is correct. Definitely, this DENR/MGB interpretation is not only legally sound,
but also greatly advantageous to the government.
One last point on the subject. The legislature acted judiciously in not defining the
terms among other things and, instead, leaving it to the agencies concerned to devise and
develop the various modes of arriving at a reasonable and fair amount for the additional
government share. As can be seen from DAO 99-56, the agencies concerned did an
admirable job of conceiving and developing not just one formula, but three different
formulae for arriving at the additional government share. Each of these options is quite fair
and reasonable; and, as Messrs. Ramos and De Vera stated, other alternatives or
schemes for a possible improvement of the fiscal regime for FTAAs are also being studied
by the government.
Besides, not locking into a fixed definition of the term among other things will ultimately
be more beneficial to the government, as it will have that innate flexibility to adjust to and
cope with rapidly changing circumstances, particularly those in the international markets.
Such flexibility is especially significant for the government in terms of helping our mining
enterprises remain competitive in world markets despite challenging and shifting economic
scenarios.
In conclusion, we stress that we do not share the view that in FTAAs with
foreign contractors under RA 7942, the governments share is limited to taxes, fees
and duties. Consequently, we find the attacks on the second paragraph of Section
81 of RA 7942 totally unwarranted.

Collections Not Made Uncertain


by the Third Paragraph of Section 81

The third or last paragraph of Section 81[72] provides that the government share in
FTAAs shall be collected when the contractor shall have recovered its pre-operating
expenses and exploration and development expenditures. The objection has been
advanced that, on account of the proviso, the collection of the States share is not even
certain, as there is no time limit in RA 7942 for this grace period or recovery period.
We believe that Congress did not set any time limit for the grace period, preferring to
leave it to the concerned agencies, which are, on account of their technical expertise and
training, in a better position to determine the appropriate durations for such recovery
periods. After all, these recovery periods are determined, to a great extent, by technical
and technological factors peculiar to the mining industry. Besides, with developments and
advances in technology and in the geosciences, we cannot discount the possibility of
shorter recovery periods. At any rate, the concerned agencies have not been remiss in
this area. The 1995 and 1996 Implementing Rules and Regulations of RA 7942 specify
that the period of recovery, reckoned from the date of commercial operation, shall be for a
period not exceeding five years, or until the date of actual recovery, whichever comes
earlier.

Approval of Pre-Operating
Expenses Required by RA 7942

Still, RA 7942 is criticized for allegedly not requiring government approval of pre-
operating, exploration and development expenses of the foreign contractors, who are in
effect given unfettered discretion to determine the amounts of such expenses.
Supposedly, nothing prevents the contractors from recording such expenses in amounts
equal to the mining revenues anticipated for the first 10 or 15 years of commercial
production, with the result that the share of the State will be zero for the first 10 or 15
years. Moreover, under the circumstances, the government would be unable to say when
it would start to receive its share under the FTAA.
We believe that the argument is based on incorrect information as well as speculation.
Obviously, certain crucial provisions in the Mining Law were overlooked. Section 23,
dealing with the rights and obligations of the exploration permit grantee, states: The
permittee shall undertake exploration work on the area as specified by its permit based on
an approved work program. The next proviso reads: Any expenditure in excess of
the yearly budget of the approved work program may be carried forward and credited to
the succeeding years covering the duration of the permit. x x x. (underscoring supplied)
Clearly, even at the stage of application for an exploration permit, the applicant is
required to submit -- for approval by the government -- a proposed work program for
exploration, containing a yearly budget of proposed expenditures. The State has the
opportunity to pass upon (and approve or reject) such proposed expenditures, with the
foreknowledge that -- if approved -- these will subsequently be recorded as pre-operating
expenses that the contractor will have to recoup over the grace period. That is not all.
Under Section 24, an exploration permit holder who determines the commercial
viability of a project covering a mining area may, within the term of the permit, file with the
Mines and Geosciences Bureau a declaration of mining project feasibility. This declaration
is to be accompanied by a work program for development for the Bureaus approval, the
necessary prelude for entering into an FTAA, a mineral production sharing agreement
(MPSA), or some other mineral agreement. At this stage, too, the government obviously
has the opportunity to approve or reject the proposed work program and budgeted
expenditures for development works on the project. Such expenditures will ultimately
become the pre-operating and development costs that will have to be recovered by the
contractor.
Naturally, with the submission of approved work programs and budgets for the
exploration and the development/construction phases, the government will be able to
scrutinize and approve or reject such expenditures. It will be well-informed as to the
amounts of pre-operating and other expenses that the contractor may legitimately recover
and the approximate period of time needed to effect such a recovery. There is therefore no
way the contractor can just randomly post any amount of pre-operating expenses and
expect to recover the same.
The aforecited provisions on approved work programs and budgets have counterparts
in Section 35, which deals with the terms and conditions exclusively applicable to FTAAs.
The said provision requires certain terms and conditions to be incorporated into FTAAs;
among them, a firm commitment x x x of an amount corresponding to the expenditure
obligation that will be invested in the contract area and representations and warranties x x
x to timely deploy these [financing, managerial and technical expertise and
technological] resources under its supervision pursuant to the periodic work programs and
related budgets x x x, as well as work programs and minimum expenditures
commitments. (underscoring supplied)
Unarguably, given the provisions of Section 35, the State has every opportunity to
pass upon the proposed expenditures under an FTAA and approve or reject them. It has
access to all the information it may need in order to determine in advance the amounts of
pre-operating and developmental expenses that will have to be recovered by the
contractor and the amount of time needed for such recovery.
In summary, we cannot agree that the third or last paragraph of Section 81 of RA
7942 is in any manner unconstitutional.

No Deprivation of
Beneficial Rights

It is also claimed that aside from the second and the third paragraphs of Section 81
(discussed above), Sections 80, 84 and 112 of RA 7942 also operate to deprive the State
of beneficial rights of ownership over mineral resources; and give them away for free to
private business enterprises (including foreign owned corporations). Likewise, the said
provisions have been construed as constituting, together with Section 81, an ingenious
attempt to resurrect the old and discredited system of license, concession or lease.
Specifically, Section 80 is condemned for limiting the States share in a mineral
production-sharing agreement (MPSA) to just the excise tax on the mineral product. Under
Section 151(A) of the Tax Code, such tax is only 2 percent of the market value of the
gross output of the minerals. The colatilla in Section 84, the portion considered offensive
to the Constitution, reiterates the same limitation made in Section 80.[73]
It should be pointed out that Section 80 and the colatilla in Section 84 pertain only to
MPSAs and have no application to FTAAs. These particular statutory provisions do not
come within the issues that were defined and delineated by this Court during the Oral
Argument -- particularly the third issue, which pertained exclusively to FTAAs. Neither did
the parties argue upon them in their pleadings. Hence, this Court cannot make any
pronouncement in this case regarding the constitutionality of Sections 80 and 84 without
violating the fundamental rules of due process. Indeed, the two provisos will have to await
another case specifically placing them in issue.
On the other hand, Section 112[74] is disparaged for allegedly reverting FTAAs and all
mineral agreements to the old and discredited license, concession or lease system. This
Section states in relevant part that the provisions of Chapter XIV [which includes Sections
80 to 82] on government share in mineral production-sharing agreement x x x shall
immediately govern and apply to a mining lessee or contractor. (underscoring supplied)
This provision is construed as signifying that the 2 percent excise tax which, pursuant to
Section 80, comprises the government share in MPSAs shall now also constitute the
government share in FTAAs -- as well as in co-production agreements and joint venture
agreements -- to the exclusion of revenues of any other nature or from any other source.
Apart from the fact that Section 112 likewise does not come within the issues
delineated by this Court during the Oral Argument, and was never touched upon by the
parties in their pleadings, it must also be noted that the criticism hurled against this
Section is rooted in unwarranted conclusions made without considering other relevant
provisions in the statute. Whether Section 112 may properly apply to co-production or joint
venture agreements, the fact of the matter is that it cannot be made to apply to FTAAs.
First, Section 112 does not specifically mention or refer to FTAAs; the only reason it is
being applied to them at all is the fact that it happens to use the word contractor. Hence, it
is a bit of a stretch to insist that it covers FTAAs as well. Second, mineral agreements, of
which there are three types -- MPSAs, co-production agreements, and joint venture
agreements -- are covered by Chapter V of RA 7942. On the other hand, FTAAs are
covered by and in fact are the subject of Chapter VI, an entirely different chapter
altogether. The law obviously intends to treat them as a breed apart from mineral
agreements, since Section 35 (found in Chapter VI) creates a long list of specific terms,
conditions, commitments, representations and warranties -- which have not been made
applicable to mineral agreements -- to be incorporated into FTAAs.
Third, under Section 39, the FTAA contractor is given the option to downgrade -- to
convert the FTAA into a mineral agreement at any time during the term if the economic
viability of the contract area is inadequate to sustain large-scale mining operations. Thus,
there is no reason to think that the law through Section 112 intends to exact from FTAA
contractors merely the same government share (a 2 percent excise tax) that it apparently
demands from contractors under the three forms of mineral agreements. In brief, Section
112 does not apply to FTAAs.
Notwithstanding the foregoing explanation, Justices Carpio and Morales maintain that
the Court must rule now on the constitutionality of Sections 80, 84 and 112, allegedly
because the WMCP FTAA contains a provision which grants the contractor unbridled and
automatic authority to convert the FTAA into an MPSA; and should such conversion
happen, the State would be prejudiced since its share would be limited to the 2 percent
excise tax. Justice Carpio adds that there are five MPSAs already signed just awaiting the
judgment of this Court on respondents and intervenors Motions for Reconsideration. We
hold however that, at this point, this argument is based on pure speculation. The Court
cannot rule on mere surmises and hypothetical assumptions, without firm factual anchor.
We repeat: basic due process requires that we hear the parties who have a real legal
interest in the MPSAs (i.e. the parties who executed them) before these MPSAs can be
reviewed, or worse, struck down by the Court. Anything less than that requirement would
be arbitrary and capricious.
In any event, the conversion of the present FTAA into an MPSA is
problematic. First, the contractor must comply with the law, particularly Section 39 of RA
7942; inter alia, it must convincingly show that the economic viability of the contract is
found to be inadequate to justify large-scale mining operations; second, it must contend
with the Presidents exercise of the power of State control over the EDU of natural
resources; and third, it will have to risk a possible declaration of the unconstitutionality (in
a proper case) of Sections 80, 84 and 112.
The first requirement is not as simple as it looks. Section 39 contemplates a situation
in which an FTAA has already been executed and entered into, and is presumably being
implemented, when the contractor discovers that the mineral ore reserves in the contract
area are not sufficient to justify large-scale mining, and thus the contractor requests the
conversion of the FTAA into an MPSA. The contractor in effect needs to explain why,
despite its exploration activities, including the conduct of various geologic and other
scientific tests and procedures in the contract area, it was unable to determine correctly
the mineral ore reserves and the economic viability of the area. The contractor must
explain why, after conducting such exploration activities, it decided to file a declaration of
mining feasibility, and to apply for an FTAA, thereby leading the State to believe that the
area could sustain large-scale mining. The contractor must justify fully why its earlier
findings, based on scientific procedures, tests and data, turned out to be wrong, or were
way off. It must likewise prove that its new findings, also based on scientific tests and
procedures, are correct. Right away, this puts the contractors technical capabilities and
expertise into serious doubt. We wonder if anyone would relish being in this situation. The
State could even question and challenge the contractors qualification and competence to
continue the activity under an MPSA.
All in all, while there may be cogent grounds to assail the aforecited Sections,
this Court -- on considerations of due process -- cannot rule upon them here.
Anyway, if later on these Sections are declared unconstitutional, such declaration
will not affect the other portions since they are clearly separable from the rest.

Our Mineral Resources Not


Given Away for Free by RA 7942
Nevertheless, if only to disabuse our minds, we should address the contention that our
mineral resources are effectively given away for free by the law (RA 7942) in general and
by Sections 80, 81, 84 and 112 in particular.
Foreign contractors do not just waltz into town one day and leave the next, taking
away mineral resources without paying anything. In order to get at the minerals, they have
to invest huge sums of money (tens or hundreds of millions of dollars) in exploration works
first. If the exploration proves unsuccessful, all the cash spent thereon will not be returned
to the foreign investors; rather, those funds will have been infused into the local economy,
to remain there permanently. The benefits therefrom cannot be simply ignored. And
assuming that the foreign contractors are successful in finding ore bodies that are viable
for commercial exploitation, they do not just pluck out the minerals and cart them off. They
have first to build camp sites and roadways; dig mine shafts and connecting tunnels;
prepare tailing ponds, storage areas and vehicle depots; install their machinery and
equipment, generator sets, pumps, water tanks and sewer systems, and so on.
In short, they need to expend a great deal more of their funds for facilities, equipment
and supplies, fuel, salaries of local labor and technical staff, and other operating
expenses. In the meantime, they also have to pay taxes, [75] duties, fees, and royalties. All
told, the exploration, pre-feasibility, feasibility, development and construction phases
together add up to as many as eleven years. [76] The contractors have to continually shell
out funds for the duration of over a decade, before they can commence commercial
production from which they would eventually derive revenues. All that money translates
into a lot of pump-priming for the local economy.
Granted that the contractors are allowed subsequently to recover their pre-operating
expenses, still, that eventuality will happen only after they shall have first put out the
cash and fueled the economy. Moreover, in the process of recouping their investments
and costs, the foreign contractors do not actually pull out the money from the economy.
Rather, they recover or recoup their investments out of actual commercial production by
not paying a portion of the basic government share corresponding to national taxes, along
with the additional government share, for a period of not more than five years [77] counted
from the commencement of commercial production.
It must be noted that there can be no recovery without commencing actual commercial
production. In the meantime that the contractors are recouping costs, they need to
continue operating; in order to do so, they have to disburse money to meet their various
needs. In short, money is continually infused into the economy.
The foregoing discussion should serve to rid us of the mistaken belief that, since the
foreign contractors are allowed to recover their investments and costs, the end result is
that they practically get the minerals for free, which leaves the Filipino people none the
better for it.

All Businesses Entitled


to Cost Recovery
Let it be put on record that not only foreign contractors, but all businessmen and all
business entities in general, have to recoup their investments and costs. That is one of the
first things a student learns in business school. Regardless of its nationality, and whether
or not a business entity has a five-year cost recovery period, it will -- must -- have to
recoup its investments, one way or another. This is just common business sense.
Recovery of investments is absolutely indispensable for business survival; and business
survival ensures soundness of the economy, which is critical and contributory to the
general welfare of the people. Even government corporations must recoup their
investments in order to survive and continue in operation. And, as the preceding
discussion has shown, there is no business that gets ahead or earns profits without any
cost to it.
It must also be stressed that, though the State owns vast mineral wealth, such wealth
is not readily accessible or transformable into usable and negotiable currency without the
intervention of the credible mining companies. Those untapped mineral resources, hidden
beneath tons of earth and rock, may as well not be there for all the good they do us right
now. They have first to be extracted and converted into marketable form, and the country
needs the foreign contractors funds, technology and know-how for that.
After about eleven years of pre-operation and another five years for cost recovery, the
foreign contractors will have just broken even. Is it likely that they would at that point stop
their operations and leave? Certainly not. They have yet to make profits. Thus, for the
remainder of the contract term, they must strive to maintain profitability. During this period,
they pay the whole of the basic government share and the additional government share
which, taken together with indirect taxes and other contributions, amount to approximately
60 percent or more of the entire financial benefits generated by the mining venture.
In sum, we can hardly talk about foreign contractors taking our mineral resources for
free. It takes a lot of hard cash to even begin to do what they do. And what they do in this
country ultimately benefits the local economy, grows businesses, generates employment,
and creates infrastructure, as discussed above. Hence, we definitely disagree with the
sweeping claim that no FTAA under Section 81 will ever make any real contribution to the
growth of the economy or to the general welfare of the country. This is not a plea for
foreign contractors. Rather, this is a question of focusing the judicial spotlight squarely on
all the pertinent facts as they bear upon the issue at hand, in order to avoid leaping
precipitately to ill-conceived conclusions not solidly grounded upon fact.

Repatriation of
After-Tax Income

Another objection points to the alleged failure of the Mining Law to ensure real
contributions to the economic growth and general welfare of the country, as mandated by
Section 2 of Article XII of the Constitution. Pursuant to Section 81 of the law, the entire
after-tax income arising from the exploitation of mineral resources owned by the State
supposedly belongs to the foreign contractors, which will naturally repatriate the said after-
tax income to their home countries, thereby resulting in no real contribution to the
economic growth of this country. Clearly, this contention is premised on erroneous
assumptions.
First, as already discussed in detail hereinabove, the concerned agencies have
correctly interpreted the second paragraph of Section 81 of RA 7942 to mean that the
government is entitled to an additional share, to be computed based on any one of the
following factors: net mining revenues, the present value of the cash flows, or excess
profits reckoned against a benchmark rate of return on investments. So it is not correct to
say that all of the after-tax income will accrue to the foreign FTAA contractor, as the
government effectively receives a significant portion thereof.
Second, the foreign contractors can hardly repatriate the entire after-tax income to
their home countries. Even a bit of knowledge of corporate finance will show that it will be
impossible to maintain a business as a going concern if the entire net profit earned in any
particular year will be taken out and repatriated. The net income figure reflected in the
bottom line is a mere accounting figure not necessarily corresponding to cash in the bank,
or other quick assets. In order to produce and set aside cash in an amount equivalent to
the bottom line figure, one may need to sell off assets or immediately collect receivables
or liquidate short-term investments; but doing so may very likely disrupt normal business
operations.
In terms of cash flows, the funds corresponding to the net income as of a particular
point in time are actually in use in the normal course of business operations. Pulling out
such net income disrupts the cash flows and cash position of the enterprise and,
depending on the amount being taken out, could seriously cripple or endanger the normal
operations and financial health of the business enterprise. In short, no sane business
person, concerned with maintaining the mining enterprise as a going concern and
keeping a foothold in its market, can afford to repatriate the entire after-tax income
to the home country.

The States Receipt of Sixty


Percent of an FTAA Contractors
After-Tax Income Not Mandatory

We now come to the next objection which runs this way: In FTAAs with a foreign
contractor, the State must receive at least 60 percent of the after-tax income from the
exploitation of its mineral resources. This share is the equivalent of the constitutional
requirement that at least 60 percent of the capital, and hence 60 percent of the income, of
mining companies should remain in Filipino hands.
First, we fail to see how we can properly conclude that the Constitution mandates the
State to extract at least 60 percent of the after-tax income from a mining company run by
a foreign contractor. The argument is that the Charter requires the States partner in a co-
production agreement, joint venture agreement or MPSA to be a Filipino corporation (at
least 60 percent owned by Filipino citizens).
We question the logic of this reasoning, premised on a supposedly parallel or
analogous situation. We are, after all, dealing with an essentially different equation, one
that involves different elements. The Charter did not intend to fix an iron-clad rule on
the 60 percent share, applicable to all situations at all times and in all
circumstances. If ever such was the intention of the framers, they would have spelt it out
in black and white. Verba legis will serve to dispel unwarranted and untenable
conclusions.
Second, if we would bother to do the math, we might better appreciate the impact (and
reasonableness) of what we are demanding of the foreign contractor. Let us use
a simplified illustration. Let us base it on gross revenues of, say, P500. After deducting
operating expenses, but prior to income tax, suppose a mining firm makes a taxable
income of P100. A corporate income tax of 32 percent results in P32 of taxable income
going to the government, leaving the mining firm with P68. Government then takes 60
percent thereof, equivalent to P40.80, leaving only P27.20 for the mining firm.
At this point the government has pocketed P32.00 plus P40.80, or a total of P72.80 for
every P100 of taxable income, leaving the mining firm with only P27.20. But that is not all.
The government has also taken 2 percent excise tax off the top, equivalent to
another P10. Under the minimum 60 percent proposal, the government nets
around P82.80 (not counting other taxes, duties, fees and charges) from a taxable income
of P100 (assuming gross revenues of P500, for purposes of illustration). On the other
hand, the foreign contractor, which provided all the capital, equipment and labor, and took
all the entrepreneurial risks -- receives P27.20. One cannot but wonder whether such a
distribution is even remotely equitable and reasonable, considering the nature of the
mining business. The amount of P82.80 out of P100.00 is really a lot it does not matter
that we call part of it excise tax or income tax, and another portion thereof income from
exploitation of mineral resources. Some might think it wonderful to be able to take the
lions share of the benefits. But we have to ask ourselves if we are really serious in
attracting the investments that are the indispensable and key element in generating the
monetary benefits of which we wish to take the lions share. Fairness is a credo not only
in law, but also in business.
Third, the 60 percent rule in the petroleum industry cannot be insisted upon at all times
in the mining business. The reason happens to be the fact that in petroleum operations,
the bulk of expenditures is in exploration, but once the contractor has found and tapped
into the deposit, subsequent investments and expenditures are relatively minimal. The
crude (or gas) keeps gushing out, and the work entailed is just a matter of piping,
transporting and storing. Not so in mineral mining. The ore body does not pop out on its
own. Even after it has been located, the contractor must continually invest in machineries
and expend funds to dig and build tunnels in order to access and extract the minerals from
underneath hundreds of tons of earth and rock.
As already stated, the numerous intrinsic differences involved in their respective
operations and requirements, cost structures and investment needs render it highly
inappropriate to use petroleum operations FTAAs as benchmarks for mining FTAAs. Verily,
we cannot just ignore the realities of the distinctly different situations and stubbornly insist
on the minimum 60 percent.
The Mining and the Oil Industries
Different From Each Other

To stress, there is no independent showing that the taking of at least a 60 percent


share in the after-tax income of a mining company operated by a foreign contractor is fair
and reasonable under most if not all circumstances. The fact that some petroleum
companies like Shell acceded to such percentage of sharing does not ipso facto mean
that it is per se reasonable and applicable to non-petroleum situations (that is, mining
companies) as well. We can take judicial notice of the fact that there are, after
all, numerous intrinsic differences involved in their respective operations and equipment
or technological requirements, costs structures and capital investment needs, and product
pricing and markets.
There is no showing, for instance, that mining companies can readily cope with a 60
percent government share in the same way petroleum companies apparently can. What
we have is a suggestion to enforce the 60 percent quota on the basis of a disjointed
analogy. The only factor common to the two disparate situations is the extraction of natural
resources.
Indeed, we should take note of the fact that Congress made a distinction between
mining firms and petroleum companies. In Republic Act No. 7729 -- An Act Reducing the
Excise Tax Rates on Metallic and Non-Metallic Minerals and Quarry Resources,
Amending for the Purpose Section 151(a) of the National Internal Revenue Code, as
amended -- the lawmakers fixed the excise tax rate on metallic and non-metallic minerals
at two percent of the actual market value of the annual gross output at the time of
removal. However, in the case of petroleum, the lawmakers set the excise tax rate for the
first taxable sale at fifteen percent of the fair international market price thereof.
There must have been a very sound reason that impelled Congress to impose two
very dissimilar excise tax rate. We cannot assume, without proof, that our honorable
legislators acted arbitrarily, capriciously and whimsically in this instance. We cannot just
ignore the reality of two distinctly different situations and stubbornly insist on going
minimum 60 percent.
To repeat, the mere fact that gas and oil exploration contracts grant the State 60
percent of the net revenues does not necessarily imply that mining contracts should
likewise yield a minimum of 60 percent for the State. Jumping to that erroneous
conclusion is like comparing apples with oranges. The exploration, development and
utilization of gas and oil are simply different from those of mineral resources.
To stress again, the main risk in gas and oil is in the exploration. But once oil in
commercial quantities is struck and the wells are put in place, the risk is relatively over
and black gold simply flows out continuously with comparatively less need for fresh
investments and technology.
On the other hand, even if minerals are found in viable quantities, there is still need
for continuous fresh capital and expertise to dig the mineral ores from the mines. Just
because deposits of mineral ores are found in one area is no guarantee that an equal
amount can be found in the adjacent areas. There are simply continuing risks and need
for more capital, expertise and industry all the time.
Note, however, that the indirect benefits -- apart from the cash revenues -- are much
more in the mineral industry. As mines are explored and extracted, vast employment is
created, roads and other infrastructure are built, and other multiplier effects arise. On the
other hand, once oil wells start producing, there is less need for employment. Roads and
other public works need not be constructed continuously. In fine, there is no basis for
saying that government revenues from the oil industry and from the mineral industries are
to be identical all the time.
Fourth, to our mind, the proffered minimum 60 percent suggestion tends to limit the
flexibility and tie the hands of government, ultimately hampering the countrys
competitiveness in the international market, to the detriment of the Filipino people. This
you-have-to-give-us-60-percent-of-after-tax-income-or-we-dont-do- business-with-you
approach is quite perilous. True, this situation may not seem too unpalatable to the foreign
contractor during good years, when international market prices are up and the mining firm
manages to keep its costs in check. However, under unfavorable economic and business
conditions, with costs spiraling skywards and minerals prices plummeting, a mining firm
may consider itself lucky to make just minimal profits.
The inflexible, carved-in-granite demand for a 60 percent government share may spell
the end of the mining venture, scare away potential investors, and thereby further worsen
the already dismal economic scenario. Moreover, such an unbending or unyielding policy
prevents the government from responding appropriately to changing economic conditions
and shifting market forces. This inflexibility further renders our country less attractive as
an investment option compared with other countries.
And fifth, for this Court to decree imperiously that the governments share should be
not less than 60 percent of the after-tax income of FTAA contractors at all times is nothing
short of dictating upon the government. The result, ironically, is that the State ends up
losing control. To avoid compromising the States full control and supervision over the
exploitation of mineral resources, this Court must back off from insisting upon a minimum
60 percent rule. It is sufficient that the State has the power and means, should it so
decide, to get a 60 percent share (or more) in the contractors net mining revenues or
after-tax income, or whatever other basis the government may decide to use in reckoning
its share. It is not necessary for it to do so in every case, regardless of circumstances.
In fact, the government must be trusted, must be accorded the liberty and the utmost
flexibility to deal, negotiate and transact with contractors and third parties as it sees fit;
and upon terms that it ascertains to be most favorable or most acceptable under the
circumstances, even if it means agreeing to less than 60 percent. Nothing must prevent
the State from agreeing to a share less than that, should it be deemed fit; otherwise the
State will be deprived of full control over mineral exploitation that the Charter has vested in
it.
To stress again, there is simply no constitutional or legal provision fixing the minimum
share of the government in an FTAA at 60 percent of the net profit. For this Court to
decree such minimum is to wade into judicial legislation, and thereby inordinately impinge
on the control power of the State. Let it be clear: the Court is not against the grant of more
benefits to the State; in fact, the more the better. If during the FTAA negotiations, the
President can secure 60 percent,[78] or even 90 percent, then all the better for our people.
But, if under the peculiar circumstances of a specific contract, the President could secure
only 50 percent or 55 percent, so be it. Needless to say, the President will have to report
(and be responsible for) the specific FTAA to Congress, and eventually to the people.
Finally, if it should later be found that the share agreed to is grossly
disadvantageous to the government, the officials responsible for entering into such a
contract on its behalf will have to answer to the courts for their malfeasance. And the
contract provision voided. But this Court would abuse its own authority should it force the
governments hand to adopt the 60 percent demand of some of our esteemed colleagues.

Capital and Expertise Provided,


Yet All Risks Assumed by Contractor

Here, we will repeat what has not been emphasized and appreciated enough: the fact
that the contractor in an FTAA provides all the needed capital, technical and managerial
expertise, and technology required to undertake the project.
In regard to the WMCP FTAA, the then foreign-owned WMCP as contractor
committed, at the very outset, to make capital investments of up to US$50 million in that
single mining project. WMCP claims to have already poured in well over P800 million into
the country as of February 1998, with more in the pipeline. These resources, valued in the
tens or hundreds of millions of dollars, are invested in a mining project that provides no
assurance whatsoever that any part of the investment will be ultimately recouped.
At the same time, the contractor must comply with legally imposed environmental
standards and the social obligations, for which it also commits to make significant
expenditures of funds. Throughout, the contractor assumes all the risks [79] of the business,
as mentioned earlier. These risks are indeed very high, considering that the rate of
success in exploration is extremely low. The probability of finding any mineral or petroleum
in commercially viable quantities is estimated to be about 1:1,000 only. On that slim
chance rides the contractors hope of recouping investments and generating profits. And
when the contractor has recouped its initial investments in the project, the government
share increases to sixty percent of net benefits -- without the State ever being in peril of
incurring costs, expenses and losses.
And even in the worst possible scenario -- an absence of commercial quantities of
minerals to justify development -- the contractor would already have spent several million
pesos for exploration works, before arriving at the point in which it can make that
determination and decide to cut its losses. In fact, during the first year alone of the
exploration period, the contractor was already committed to spend not less than P24
million. The FTAA therefore clearly ensures benefits for the local economy, courtesy of the
contractor.
All in all, this setup cannot be regarded as disadvantageous to the State or the
Filipino people; it certainly cannot be said to convey beneficial ownership of our
mineral resources to foreign contractors.

Deductions Allowed by the


WMCP FTAA Reasonable

Petitioners question whether the States weak control might render the sharing
arrangements ineffective. They cite the so-called suspicious deductions allowed by the
WMCP FTAA in arriving at the net mining revenue, which is the basis for computing the
government share. The WMCP FTAA, for instance, allows expenditures for development
within and outside the Contract Area relating to the Mining Operations,[80] consulting fees
incurred both inside and outside the Philippines for work related directly to the Mining
Operations,[81] and the establishment and administration of field offices including
administrative overheads incurred within and outside the Philippines which are properly
allocatable to the Mining Operations and reasonably related to the performance of the
Contractors obligations and exercise of its rights under this Agreement.[82]
It is quite well known, however, that mining companies do perform some marketing
activities abroad in respect of selling their mineral products and by-products. Hence, it
would not be improper to allow the deduction of reasonable consulting fees incurred
abroad, as well as administrative expenses and overheads related to marketing offices
also located abroad -- provided that these deductions are directly related or properly
allocatable to the mining operations and reasonably related to the performance of the
contractors obligations and exercise of its rights. In any event, more facts are needed.
Until we see how these provisions actually operate, mere suspicions will not suffice to
propel this Court into taking action.

Section 7.9 of the WMCP FTAA


Invalid and Disadvantageous

Having defended the WMCP FTAA, we shall now turn to two defective provisos. Let us
start with Section 7.9 of the WMCP FTAA. While Section 7.7 gives the government a 60
percent share in the net mining revenues of WMCP from the commencement of
commercial production, Section 7.9 deprives the government of part or all of the said 60
percent. Under the latter provision, should WMCPs foreign shareholders -- who originally
owned 100 percent of the equity -- sell 60 percent or more of its outstanding capital stock
to a Filipino citizen or corporation, the State loses its right to receive its 60 percent share
in net mining revenues under Section 7.7.
Section 7.9 provides:

The percentage of Net Mining Revenues payable to the Government pursuant to Clause 7.7 shall be
reduced by 1percent of Net Mining Revenues for every 1percent ownership interest in the
Contractor (i.e., WMCP) held by a Qualified Entity.[83]
Evidently, what Section 7.7 grants to the State is taken away in the next breath by
Section 7.9 without any offsetting compensation to the State. Thus, in reality, the State
has no vested right to receive any income from the FTAA for the exploitation of its mineral
resources. Worse, it would seem that what is given to the State in Section 7.7 is by mere
tolerance of WMCPs foreign stockholders, who can at any time cut off the governments
entire 60 percent share. They can do so by simply selling 60 percent of WMCPs
outstanding capital stock to a Philippine citizen or corporation. Moreover, the proceeds of
such sale will of course accrue to the foreign stockholders of WMCP, not to the State.
The sale of 60 percent of WMCPs outstanding equity to a corporation that is 60
percent Filipino-owned and 40 percent foreign-owned will still trigger the operation of
Section 7.9. Effectively, the State will lose its right to receive all 60 percent of the net
mining revenues of WMCP; and foreign stockholders will own beneficially up to 64 percent
of WMCP, consisting of the remaining 40 percent foreign equity therein, plus the 24
percent pro-rata share in the buyer-corporation.[84]
In fact, the January 23, 2001 sale by WMCPs foreign stockholder of the entire
outstanding equity in WMCP to Sagittarius Mines, Inc. -- a domestic corporation at least
60 percent Filipino owned -- may be deemed to have automatically triggered the operation
of Section 7.9, without need of further action by any party, and removed the States right to
receive the 60 percent share in net mining revenues.
At bottom, Section 7.9 has the effect of depriving the State of its 60 percent share in
the net mining revenues of WMCP without any offset or compensation whatsoever. It is
possible that the inclusion of the offending provision was initially prompted by the desire to
provide some form of incentive for the principal foreign stockholder in WMCP to eventually
reduce its equity position and ultimately divest in favor of Filipino citizens and
corporations. However, as finally structured, Section 7.9 has the deleterious effect of
depriving government of the entire 60 percent share in WMCPs net mining revenues,
without any form of compensation whatsoever. Such an outcome is completely
unacceptable.
The whole point of developing the nations natural resources is to benefit the Filipino
people, future generations included. And the State as sovereign and custodian of the
nations natural wealth is mandated to protect, conserve, preserve and develop that part of
the national patrimony for their benefit. Hence, the Charter lays great emphasis on real
contributions to the economic growth and general welfare of the country [85] as essential
guiding principles to be kept in mind when negotiating the terms and conditions of FTAAs.
Earlier, we held (1) that the State must be accorded the liberty and the utmost flexibility
to deal, negotiate and transact with contractors and third parties as it sees fit, and upon
terms that it ascertains to be most favorable or most acceptable under the circumstances,
even if that should mean agreeing to less than 60 percent; (2) that it is not necessary for
the State to extract a 60 percent share in every case and regardless of circumstances;
and (3) that should the State be prevented from agreeing to a share less than 60 percent
as it deems fit, it will be deprived of the full control over mineral exploitation that the
Charter has vested in it.
That full control is obviously not an end in itself; it exists and subsists precisely
because of the need to serve and protect the national interest. In this instance, national
interest finds particular application in the protection of the national patrimony and the
development and exploitation of the countrys mineral resources for the benefit of the
Filipino people and the enhancement of economic growth and the general welfare of the
country. Undoubtedly, such full control can be misused and abused, as we now
witness.
Section 7.9 of the WMCP FTAA effectively gives away the States share of net mining
revenues (provided for in Section 7.7) without anything in exchange. Moreover, this
outcome constitutes unjust enrichment on the part of the local and foreign stockholders of
WMCP. By their mere divestment of up to 60 percent equity in WMCP in favor of Filipino
citizens and/or corporations, the local and foreign stockholders get a windfall. Their share
in the net mining revenues of WMCP is automatically increased, without their having to
pay the government anything for it. In short, the provision in question is without a
doubt grossly disadvantageous to the government, detrimental to the interests of the
Filipino people, and violative of public policy.
Moreover, it has been reiterated in numerous decisions[86] that the parties to a contract
may establish any agreements, terms and conditions that they deem convenient; but
these should not be contrary to law, morals, good customs, public order or public policy.
[87]
Being precisely violative of anti-graft provisions and contrary to public policy, Section
7.9 must therefore be stricken off as invalid.
Whether the government officials concerned acceded to that provision by sheer
mistake or with full awareness of the ill consequences, is of no moment. It is hornbook
doctrine that the principle of estoppel does not operate against the government for the act
of its agents,[88] and that it is never estopped by any mistake or error on their part. [89] It is
therefore possible and proper to rectify the situation at this time. Moreover, we may also
say that the FTAA in question does not involve mere contractual rights; being impressed
as it is with public interest, the contractual provisions and stipulations must yield to the
common good and the national interest.
Since the offending provision is very much separable [90] from Section 7.7 and the rest
of the FTAA, the deletion of Section 7.9 can be done without affecting or requiring the
invalidation of the WMCP FTAA itself. Such a deletion will preserve for the government its
due share of the benefits. This way, the mandates of the Constitution are complied with
and the interests of the government fully protected, while the business operations of the
contractor are not needlessly disrupted.

Section 7.8(e) of the WMCP FTAA


Also Invalid and Disadvantageous

Section 7.8(e) of the WMCP FTAA is likewise invalid. It provides thus:

7.8 The Government Share shall be deemed to include all of the following sums:
(a) all Government taxes, fees, levies, costs, imposts, duties and royalties
including excise tax, corporate income tax, customs duty, sales tax,
value added tax, occupation and regulatory fees, Government
controlled price stabilization schemes, any other form of Government
backed schemes, any tax on dividend payments by the Contractor or its
Affiliates in respect of revenues from the Mining Operations and any
tax on interest on domestic and foreign loans or other financial
arrangements or accommodations, including loans extended to the
Contractor by its stockholders;
(b) any payments to local and regional government, including taxes, fees,
levies, costs, imposts, duties, royalties, occupation and regulatory fees
and infrastructure contributions;
(c) any payments to landowners, surface rights holders, occupiers, indigenous
people or Claimowners;
(d) costs and expenses of fulfilling the Contractors obligations to contribute to
national development in accordance with Clause 10.1(i) (1) and 10.1(i)
(2);
(e) an amount equivalent to whatever benefits that may be extended in the
future by the Government to the Contractor or to financial or technical
assistance agreement contractors in general;
(f) all of the foregoing items which have not previously been offset against the
Government Share in an earlier Fiscal Year, adjusted for inflation.
(underscoring supplied)
Section 7.8(e) is out of place in the FTAA. It makes no sense why, for instance, money
spent by the government for the benefit of the contractor in building roads leading to the
mine site should still be deductible from the States share in net mining revenues. Allowing
this deduction results in benefiting the contractor twice over. It constitutes unjust
enrichment on the part of the contractor at the expense of the government, since the latter
is effectively being made to pay twice for the same item. [91] For being grossly
disadvantageous and prejudicial to the government and contrary to public policy, Section
7.8(e) is undoubtedly invalid and must be declared to be without effect. Fortunately, this
provision can also easily be stricken off without affecting the rest of the FTAA.

Nothing Left Over


After Deductions?

In connection with Section 7.8, an objection has been raised: Specified in Section 7.8
are numerous items of deduction from the States 60 percent share. After taking these into
account, will the State ever receive anything for its ownership of the mineral resources?
We are confident that under normal circumstances, the answer will be yes. If we
examine the various items of deduction listed in Section 7.8 of the WMCP FTAA, we will
find that they correspond closely to the components or elements of the basic government
share established in DAO 99-56, as discussed in the earlier part of this Opinion.
Likewise, the balance of the governments 60 percent share -- after netting out the
items of deduction listed in Section 7.8 --corresponds closely to the additional
government share provided for in DAO 99-56 which, we once again stress, has nothing
at all to do with indirect taxes. The Ramos-DeVera paper [92] concisely presents the fiscal
contribution of an FTAA under DAO 99-56 in this equation:
Receipts from an FTAA = basic govt share + addl govt share
Transposed into a similar equation, the fiscal payments system from the WMCP FTAA
assumes the following formulation:

Governments 60 percent share in net mining revenues of WMCP = items listed in Sec. 7.8 of the
FTAA + balance of Govt share, payable 4 months from the end of the fiscal year

It should become apparent that the fiscal arrangement under the WMCP FTAA is very
similar to that under DAO 99-56, with the balance of government share payable 4 months
from end of fiscal year being the equivalent of the additional government
share computed in accordance with the net-mining-revenue-based option under DAO 99-
56, as discussed above. As we have emphasized earlier, we find each of the three options
for computing the additional government share -- as presented in DAO 99-56 -- to be
sound and reasonable.
We therefore conclude that there is nothing inherently wrong in the fiscal
regime of the WMCP FTAA, and certainly nothing to warrant the invalidation of the
FTAA in its entirety.

Section 3.3 of the WMCP


FTAA Constitutional

Section 3.3 of the WMCP FTAA is assailed for violating supposed constitutional
restrictions on the term of FTAAs. The provision in question reads:

3.3 This Agreement shall be renewed by the Government for a further period of twenty-five
(25) years under the same terms and conditions provided that the Contractor lodges a
request for renewal with the Government not less than sixty (60) days prior to the
expiry of the initial term of this Agreement and provided that the Contractor is not in
breach of any of the requirements of this Agreement.

Allegedly, the above provision runs afoul of Section 2 of Article XII of the 1987
Constitution, which states:

Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development and utilization of natural resources
shall be under the full control and supervision of the State. The State may directly undertake such
activities, or it may enter into co-production, joint venture or production-sharing agreements with
Filipino citizens or corporations or associations at least sixty per centum of whose capital is
owned by such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as may be
provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses
other than the development of water power, beneficial use may be the measure and limit of the
grant.

The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fish-workers in rivers,
lakes, bays and lagoons.

The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and use of local scientific
and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution. [93]

We hold that the term limitation of twenty-five years does not apply to FTAAs. The
reason is that the above provision is found within paragraph 1 of Section 2 of Article XII,
which refers to mineral agreements -- co-production agreements, joint venture
agreements and mineral production-sharing agreements -- which the government may
enter into with Filipino citizens and corporations, at least 60 percent owned by Filipino
citizens. The word such clearly refers to these three mineral agreements -- CPAs, JVAs
and MPSAs -- not to FTAAs.
Specifically, FTAAs are covered by paragraphs 4 and 5 of Section 2 of Article XII of the
Constitution. It will be noted that there are no term limitations provided for in the said
paragraphs dealing with FTAAs. This shows that FTAAs are sui generis, in a class of their
own. This omission was obviously a deliberate move on the part of the framers. They
probably realized that FTAAs would be different in many ways from MPSAs, JVAs and
CPAs. The reason the framers did not fix term limitations applicable to FTAAs is that they
preferred to leave the matter to the discretion of the legislature and/or the agencies
involved in implementing the laws pertaining to FTAAs, in order to give the latter enough
flexibility and elbow room to meet changing circumstances.
Note also that, as previously stated, the exploratory phrases of an FTAA lasts up to
eleven years. Thereafter, a few more years would be gobbled up in start-up operations. It
may take fifteen years before an FTAA contractor can start earning profits. And thus, the
period of 25 years may really be short for an FTAA. Consider too that in this kind of
agreement, the contractor assumes all entrepreneurial risks. If no commercial quantities of
minerals are found, the contractor bears all financial losses. To compensate for this long
gestation period and extra business risks, it would not be totally unreasonable to allow it to
continue EDU activities for another twenty five years.
In any event, the complaint is that, in essence, Section 3.3 gives the contractor the
power to compel the government to renew the WMCP FTAA for another 25 years and
deprives the State of any say on whether to renew the contract.
While we agree that Section 3.3 could have been worded so as to prevent it from
favoring the contractor, this provision does not violate any constitutional limits, since the
said term limitation does not apply at all to FTAAs. Neither can the provision be deemed in
any manner to be illegal, as no law is being violated thereby. It is certainly not illegal for
the government to waive its option to refuse the renewal of a commercial contract.
Verily, the government did not have to agree to Section 3.3. It could have said No to
the stipulation, but it did not. It appears that, in the process of negotiations, the other
contracting party was able to convince the government to agree to the renewal terms.
Under the circumstances, it does not seem proper for this Court to intervene and step in to
undo what might have perhaps been a possible miscalculation on the part of the State. If
government believes that it is or will be aggrieved by the effects of Section 3.3, the
remedy is the renegotiation of the provision in order to provide the State the option to not
renew the FTAA.

Financial Benefits for Foreigners


Not Forbidden by the Constitution

Before leaving this subject matter, we find it necessary for us to rid ourselves of the
false belief that the Constitution somehow forbids foreign-owned corporations from
deriving financial benefits from the development of our natural or mineral resources.
The Constitution has never prohibited foreign corporations from acquiring and enjoying
beneficial interest in the development of Philippine natural resources. The State itself need
not directly undertake exploration, development, and utilization activities. Alternatively, the
Constitution authorizes the government to enter into joint venture agreements (JVAs), co-
production agreements (CPAs) and mineral production sharing agreements (MPSAs) with
contractors who are Filipino citizens or corporations that are at least 60 percent Filipino-
owned. They may do the actual dirty work -- the mining operations.
In the case of a 60 percent Filipino-owned corporation, the 40 percent individual and/or
corporate non-Filipino stakeholders obviously participate in the beneficial interest derived
from the development and utilization of our natural resources. They may receive by way of
dividends, up to 40 percent of the contractors earnings from the mining project. Likewise,
they may have a say in the decisions of the board of directors, since they are entitled to
representation therein to the extent of their equity participation, which the Constitution
permits to be up to 40 percent of the contractors equity. Hence, the non-Filipino
stakeholders may in that manner also participate in the management of the contractors
natural resource development work. All of this is permitted by our Constitution, for any
natural resource, and without limitation even in regard to the magnitude of the mining
project or operations (see paragraph 1 of Section 2 of Article XII).
It is clear, then, that there is nothing inherently wrong with or constitutionally
objectionable about the idea of foreign individuals and entities having or enjoying
beneficial interest in -- and participating in the management of operations relative to -- the
exploration, development and utilization of our natural resources.

FTAA More Advantageous


Than Other Schemes
Like CPA, JVA and MPSA

A final point on the subject of beneficial interest. We believe the FTAA is a more
advantageous proposition for the government as compared with other agreements
permitted by the Constitution. In a CPA that the government enters into with one or more
contractors, the government shall provide inputs to the mining operations other than the
mineral resource itself.[94]
In a JVA, a JV company is organized by the government and the contractor, with both
parties having equity shares (investments); and the contractor is granted the exclusive
right to conduct mining operations and to extract minerals found in the area. [95] On the
other hand, in an MPSA, the government grants the contractor the exclusive right to
conduct mining operations within the contract area and shares in the gross output; and the
contractor provides the necessary financing, technology, management and manpower.
The point being made here is that, in two of the three types of agreements under
consideration, the government has to ante up some risk capital for the enterprise. In other
words, government funds (public moneys) are withdrawn from other possible uses, put to
work in the venture and placed at risk in case the venture fails. This notwithstanding,
management and control of the operations of the enterprise are -- in all three
arrangements -- in the hands of the contractor, with the government being mainly a silent
partner. The three types of agreement mentioned above apply to any natural resource,
without limitation and regardless of the size or magnitude of the project or operations.
In contrast to the foregoing arrangements, and pursuant to paragraph 4 of Section 2 of
Article XII, the FTAA is limited to large-scale projects and only for minerals, petroleum and
other mineral oils. Here, the Constitution removes the 40 percent cap on foreign
ownership and allows the foreign corporation to own up to 100 percent of the equity.
Filipino capital may not be sufficient on account of the size of the project, so the foreign
entity may have to ante up all the risk capital.
Correlatively, the foreign stakeholder bears up to 100 percent of the risk of loss if the
project fails. In respect of the particular FTAA granted to it, WMCP (then 100 percent
foreign owned) was responsible, as contractor, for providing the entire equity, including all
the inputs for the project. It was to bear 100 percent of the risk of loss if the project failed,
but its maximum potential beneficial interest consisted only of 40 percent of the net
beneficial interest, because the other 60 percent is the share of the government, which will
never be exposed to any risk of loss whatsoever.
In consonance with the degree of risk assumed, the FTAA vested in WMCP the day-
to-day management of the mining operations. Still such management is subject to the
overall control and supervision of the State in terms of regular reporting, approvals of work
programs and budgets, and so on.
So, one needs to consider in relative terms, the costs of inputs for, degree of risk
attendant to, and benefits derived or to be derived from a CPA, a JVA or an MPSA vis--vis
those pertaining to an FTAA. It may not be realistically asserted that the foreign grantee of
an FTAA is being unduly favored or benefited as compared with a foreign stakeholder in a
corporation holding a CPA, a JVA or an MPSA. Seen the other way around, the
government is definitely better off with an FTAA than a CPA, a JVA or an MPSA.

Developmental Policy
on the Mining Industry

During the Oral Argument and in their Final Memorandum, petitioners repeatedly
urged the Court to consider whether mining as an industry and economic activity deserved
to be accorded priority, preference and government support as against, say, agriculture
and other activities in which Filipinos and the Philippines may have an economic
advantage. For instance, a recent US study[96] reportedly examined the economic
performance of all local US counties that were dependent on mining and 20 percent of
whose labor earnings between 1970 and 2000 came from mining enterprises.
The study -- covering 100 US counties in 25 states dependent on mining -- showed
that per capita income grew about 30 percent less in mining-dependent communities in
the 1980s and 25 percent less for the entire period 1980 to 2000; the level of per capita
income was also lower. Therefore, given the slower rate of growth, the gap between these
and other local counties increased.
Petitioners invite attention to the OXFAM America Reports warning to developing
nations that mining brings with it serious economic problems, including increased regional
inequality, unemployment and poverty. They also cite the final report [97] of the Extractive
Industries Review project commissioned by the World Bank (the WB-EIR Report), which
warns of environmental degradation, social disruption, conflict, and uneven sharing of
benefits with local communities that bear the negative social and environmental impact.
The Report suggests that countries need to decide on the best way to exploit their natural
resources, in order to maximize the value added from the development of their resources
and ensure that they are on the path to sustainable development once the resources run
out.
Whatever priority or preference may be given to mining vis--vis other economic or non-
economic activities is a question of policy that the President and Congress will have to
address; it is not for this Court to decide. This Court declares what the Constitution and
the laws say, interprets only when necessary, and refrains from delving into matters of
policy.
Suffice it to say that the State control accorded by the Constitution over mining
activities assures a proper balancing of interests. More pointedly, such control will enable
the President to demand the best mining practices and the use of the best available
technologies to protect the environment and to rehabilitate mined-out areas. Indeed, under
the Mining Law, the government can ensure the protection of the environment during and
after mining. It can likewise provide for the mechanisms to protect the rights of indigenous
communities, and thereby mold a more socially-responsive, culturally-sensitive and
sustainable mining industry.
Early on during the launching of the Presidential Mineral Industry Environmental
Awards on February 6, 1997, then President Fidel V. Ramos captured the essence of
balanced and sustainable mining in these words:

Long term, high profit mining translates into higher revenues for government, more decent jobs for
the population, more raw materials to feed the engines of downstream and allied industries, and
improved chances of human resource and countryside development by creating self-reliant
communities away from urban centers.

xxxxxxxxx

Against a fragile and finite environment, it is sustainability that holds the key. In sustainable
mining, we take a middle ground where both production and protection goals are balanced, and
where parties-in-interest come to terms.

Neither has the present leadership been remiss in addressing the concerns of
sustainable mining operations. Recently, on January 16, 2004 and April 20, 2004,
President Gloria Macapagal Arroyo issued Executive Orders Nos. 270 and 270-A,
respectively, to promote responsible mineral resources exploration, development and
utilization, in order to enhance economic growth, in a manner that adheres to the
principles of sustainable development and with due regard for justice and equity,
sensitivity to the culture of the Filipino people and respect for Philippine sovereignty.[98]

REFUTATION OF DISSENTS

The Court will now take up a number of other specific points raised in the dissents of
Justices Carpio and Morales.
1. Justice Morales introduced us to Hugh Morgan, former president and chief
executive officer of Western Mining Corporation (WMC) and former president of the
Australian Mining Industry Council, who spearheaded the vociferous opposition to the
filing by aboriginal peoples of native title claims against mining companies in Australia in
the aftermath of the landmark Mabo decision by the Australian High Court. According to
sources quoted by our esteemed colleague, Morgan was also a racist and a bigot. In the
course of protesting Mabo, Morgan allegedly uttered derogatory remarks belittling the
aboriginal culture and race.
An unwritten caveat of this introduction is that this Court should be careful not to
permit the entry of the likes of Hugh Morgan and his hordes of alleged racist-bigots at
WMC. With all due respect, such scare tactics should have no place in the discussion of
this case. We are deliberating on the constitutionality of RA 7942, DAO 96-40 and the
FTAA originally granted to WMCP, which had been transferred to Sagittarius Mining, a
Filipino corporation. We are not discussing the apparition of white Anglo-Saxon
racists/bigots massing at our gates.
2. On the proper interpretation of the phrase agreements involving either technical or
financial assistance, Justice Morales points out that at times we conveniently omitted the
use of the disjunctive eitheror, which according to her denotes restriction; hence the
phrase must be deemed to connote restriction and limitation.
But, as Justice Carpio himself pointed out during the Oral Argument, the disjunctive
phrase either technical or financial assistance would, strictly speaking, literally mean that a
foreign contractor may provide only one or the other, but not both. And if both technical
and financial assistance were required for a project, the State would have to deal with at
least two different foreign contractors -- one for financial and the other for technical
assistance. And following on that, a foreign contractor, though very much qualified to
provide both kinds of assistance, would nevertheless be prohibited from providing one
kind as soon as it shall have agreed to provide the other.
But if the Court should follow this restrictive and literal construction, can we really find
two (or more) contractors who are willing to participate in one single project -- one to
provide the financial assistance only and the other the technical assistance exclusively; it
would be excellent if these two or more contractors happen to be willing and are able to
cooperate and work closely together on the same project (even if they are otherwise
competitors). And it would be superb if no conflicts would arise between or among them in
the entire course of the contract. But what are the chances things will turn out this way in
the real world? To think that the framers deliberately imposed this kind of restriction is to
say that they were either exceedingly optimistic, or incredibly nave. This begs the question
-- What laudable objective or purpose could possibly be served by such strict and
restrictive literal interpretation?
3. Citing Oposa v. Factoran Jr., Justice Morales claims that a service contract is not a
contract or property right which merits protection by the due process clause of the
Constitution, but merely a license or privilege which may be validly revoked, rescinded or
withdrawn by executive action whenever dictated by public interest or public welfare.
Oposa cites Tan v. Director of Forestry and Ysmael v. Deputy Executive Secretary as
authority. The latter cases dealt specifically with timber licenses only. Oposa allegedly
reiterated that a license is merely a permit or privilege to do what otherwise would be
unlawful, and is not a contract between the authority, federal, state or municipal, granting
it and the person to whom it is granted; neither is it property or a property right, nor does it
create a vested right; nor is it taxation. Thus this Court held that the granting of license
does not create irrevocable rights, neither is it property or property rights.
Should Oposa be deemed applicable to the case at bar, on the argument that natural
resources are also involved in this situation? We do not think so. A grantee of a timber
license, permit or license agreement gets to cut the timber already growing on the surface;
it need not dig up tons of earth to get at the logs. In a logging concession, the investment
of the licensee is not as substantial as the investment of a large-scale mining contractor. If
a timber license were revoked, the licensee packs up its gear and moves to a new area
applied for, and starts over; what it leaves behind are mainly the trails leading to the
logging site.
In contrast, the mining contractor will have sunk a great deal of money (tens of millions
of dollars) into the ground, so to speak, for exploration activities, for development of the
mine site and infrastructure, and for the actual excavation and extraction of minerals,
including the extensive tunneling work to reach the ore body. The cancellation of the
mining contract will utterly deprive the contractor of its investments (i.e., prevent recovery
of investments), most of which cannot be pulled out.
To say that an FTAA is just like a mere timber license or permit and does not involve
contract or property rights which merit protection by the due process clause of the
Constitution, and may therefore be revoked or cancelled in the blink of an eye, is to adopt
a well-nigh confiscatory stance; at the very least, it is downright dismissive of the property
rights of businesspersons and corporate entities that have investments in the mining
industry, whose investments, operations and expenditures do contribute to the general
welfare of the people, the coffers of government, and the strength of the economy. Such a
pronouncement will surely discourage investments (local and foreign) which are critically
needed to fuel the engine of economic growth and move this country out of the rut of
poverty. In sum, Oposa is not applicable.
4. Justice Morales adverts to the supposedly clear intention of the framers of the
Constitution to reserve our natural resources exclusively for the Filipino people. She then
quoted from the records of the ConCom deliberations a passage in which then
Commissioner Davide explained his vote, arguing in the process that aliens ought not be
allowed to participate in the enjoyment of our natural resources. One passage does not
suffice to capture the tenor or substance of the entire extensive deliberations of the
commissioners, or to reveal the clear intention of the framers as a group. A re-reading of
the entire deliberations (quoted here earlier) is necessary if we are to understand the true
intent of the framers.
5. Since 1935, the Filipino people, through their Constitution, have decided that the
retardation or delay in the exploration, development or utilization of the nations natural
resources is merely secondary to the protection and preservation of their ownership of the
natural resources, so says Justice Morales, citing Aruego. If it is true that the framers of
the 1987 Constitution did not care much about alleviating the retardation or delay in the
development and utilization of our natural resources, why did they bother to write
paragraph 4 at all? Were they merely paying lip service to large-scale exploration,
development and utilization? They could have just completely ignored the subject matter
and left it to be dealt with through a future constitutional amendment. But we have to
harmonize every part of the Constitution and to interpret each provision in a manner that
would give life and meaning to it and to the rest of the provisions. It is obvious that a literal
interpretation of paragraph 4 will render it utterly inutile and inoperative.
6. According to Justice Morales, the deliberations of the Constitutional Commission do
not support our contention that the framers, by specifying such agreements involving
financial or technical assistance, necessarily gave implied assent to everything that these
agreements implicitly entailed, or that could reasonably be deemed necessary to make
them tenable and effective, including management authority in the day-to-day operations.
As proof thereof, she quotes one single passage from the ConCom deliberations,
consisting of an exchange among Commissioners Tingson, Garcia and Monsod.
However, the quoted exchange does not serve to contradict our argument; it even
bolsters it. Comm. Christian Monsod was quoted as saying: xxx I think we have to make a
distinction that it is not really realistic to say that we will borrow on our own terms. Maybe
we can say that we inherited unjust loans, and we would like to repay these on terms that
are not prejudicial to our own growth. But the general statement that we should only
borrow on our own terms is a bit unrealistic. Comm. Monsod is one who knew whereof he
spoke.
7. Justice Morales also declares that the optimal time for the conversion of an FTAA
into an MPSA is after completion of the exploration phase and just before undertaking the
development and construction phase, on account of the fact that the requirement for a
minimum investment of $50 million is applicable only during the development, construction
and utilization phase, but not during the exploration phase, when the foreign contractor
need merely comply with minimum ground expenditures. Thus by converting, the foreign
contractor maximizes its profits by avoiding its obligation to make the minimum investment
of $50 million.
This argument forgets that the foreign contractor is in the game precisely to make
money. In order to come anywhere near profitability, the contractor must first extract and
sell the mineral ore. In order to do that, it must also develop and construct the mining
facilities, set up its machineries and equipment and dig the tunnels to get to the deposit.
The contractor is thus compelled to expend funds in order to make profits. If it decides to
cut back on investments and expenditures, it will necessarily sacrifice the pace of
development and utilization; it will necessarily sacrifice the amount of profits it can make
from the mining operations. In fact, at certain less-than-optimal levels of operation, the
stream of revenues generated may not even be enough to cover variable expenses, let
alone overhead expenses; this is a dismal situation anyone would want to avoid. In order
to make money, one has to spend money. This truism applies to the mining industry as
well.
8. Mortgaging the minerals to secure a foreign FTAA contractors obligations is
anomalous, according to Justice Morales since the contractor was from the beginning
obliged to provide all financing needed for the mining operations. However, the
mortgaging of minerals by the contractor does not necessarily signify that the contractor is
unable to provide all financing required for the project, or that it does not have the financial
capability to undertake large-scale operations. Mortgaging of mineral products, just like
the assignment (by way of security) of manufactured goods and goods in inventory, and
the assignment of receivables, is an ordinary requirement of banks, even in the case of
clients with more than sufficient financial resources. And nowadays, even the richest and
best managed corporations make use of bank credit facilities -- it does not necessarily
signify that they do not have the financial resources or are unable to provide the financing
on their own; it is just a manner of maximizing the use of their funds.
9. Does the contractor in reality acquire the surface rights for free, by virtue of the fact
that it is entitled to reimbursement for the costs of acquisition and maintenance, adjusted
for inflation? We think not. The reimbursement is possible only at the end of the term of
the contract, when the surface rights will no longer be needed, and the land previously
acquired will have to be disposed of, in which case the contractor gets reimbursement
from the sales proceeds. The contractor has to pay out the acquisition price for the land.
That money will belong to the seller of the land. Only if and when the land is finally sold off
will the contractor get any reimbursement. In other words, the contractor will have been
cash-out for the entire duration of the term of the contract -- 25 or 50 years, depending. If
we calculate the cost of money at say 12 percent per annum, that is the cost or
opportunity loss to the contractor, in addition to the amount of the acquisition price. 12
percent per annum for 50 years is 600 percent; this, without any compounding yet. The
cost of money is therefore at least 600 percent of the original acquisition cost; it is in
addition to the acquisition cost. For free? Not by a long shot.
10. The contractor will acquire and hold up to 5,000 hectares? We doubt it. The
acquisition by the State of land for the contractor is just to enable the contractor to
establish its mine site, build its facilities, establish a tailings pond, set up its machinery and
equipment, and dig mine shafts and tunnels, etc. It is impossible that the surface
requirement will aggregate 5,000 hectares. Much of the operations will consist of the
tunneling and digging underground, which will not require possessing or using any land
surface. 5,000 hectares is way too much for the needs of a mining operator. It simply will
not spend its cash to acquire property that it will not need; the cash may be better
employed for the actual mining operations, to yield a profit.
11. Justice Carpio claims that the phrase among other things (found in the second
paragraph of Section 81 of the Mining Act) is being incorrectly treated as a delegation of
legislative power to the DENR secretary to issue DAO 99-56 and prescribe the formulae
therein on the States share from mining operations. He adds that the phrase among other
things was not intended as a delegation of legislative power to the DENR secretary, much
less could it be deemed a valid delegation of legislative power, since there is nothing in
the second paragraph of Section 81 which can be said to grant any delegated legislative
power to the DENR secretary. And even if there were, such delegation would be void, for
lack of any standards by which the delegated power shall be exercised.
While there is nothing in the second paragraph of Section 81 which can directly be
construed as a delegation of legislative power to the DENR secretary, it does not mean
that DAO 99-56 is invalid per se, or that the secretary acted without any authority or
jurisdiction in issuing DAO 99-56. As we stated earlier in our Prologue, Who or what organ
of government actually exercises this power of control on behalf of the State? The
Constitution is crystal clear: the President. Indeed, the Chief Executive is the official
constitutionally mandated to enter into agreements with foreign owned corporations. On
the other hand, Congress may review the action of the President once it is notified of
every contract entered into in accordance with this [constitutional] provision within thirty
days from its execution. It is the President who is constitutionally mandated to enter into
FTAAs with foreign corporations, and in doing so, it is within the Presidents prerogative to
specify certain terms and conditions of the FTAAs, for example, the fiscal regime of
FTAAs -- i.e., the sharing of the net mining revenues between the contractor and the
State.
Being the Presidents alter ego with respect to the control and supervision of the mining
industry, the DENR secretary, acting for the President, is necessarily clothed with the
requisite authority and power to draw up guidelines delineating certain terms and
conditions, and specifying therein the terms of sharing of benefits from mining, to be
applicable to FTAAs in general. It is important to remember that DAO 99-56 has been in
existence for almost six years, and has not been amended or revoked by the President.
The issuance of DAO 99-56 did not involve the exercise of delegated legislative
power. The legislature did not delegate the power to determine the nature, extent and
composition of the items that would come under the phrase among other things. The
legislatures power pertains to the imposition of taxes, duties and fees. This power was not
delegated to the DENR secretary. But the power to negotiate and enter into FTAAs was
withheld from Congress, and reserved for the President. In determining the sharing of
mining benefits, i.e., in specifying what the phrase among other things include, the
President (through the secretary acting in his/her behalf) was not determining the amount
or rate of taxes, duties and fees, but rather the amount of INCOME to be derived from
minerals to be extracted and sold, income which belongs to the State as owner of the
mineral resources. We may say that, in the second paragraph of Section 81, the
legislature in a sense intruded partially into the Presidents sphere of authority when the
former provided that

The Government share in financial or technical assistance agreement shall consist of, among other
things, the contractors corporate income tax, excise tax, special allowance, withholding tax due
from the contractors foreign stockholders arising from dividend or interest payments to the said
foreign stockholder in case of a foreign national and all such other taxes, duties and fees as
provided for under existing laws. (Italics supplied)

But it did not usurp the Presidents authority since the provision merely included the
enumerated items as part of the government share, without foreclosing or in any way
preventing (as in fact Congress could not validly prevent) the President from determining
what constitutes the States compensation derived from FTAAs. In this case, the President
in effect directed the inclusion or addition of other things, viz., INCOME for the owner of
the resources, in the governments share, while adopting the items enumerated by
Congress as part of the government share also.
12. Justice Carpios insistence on applying the ejusdem generis rule of statutory
construction to the phrase among other things is therefore useless, and must fall by the
wayside. There is no point trying to construe that phrase in relation to the enumeration of
taxes, duties and fees found in paragraph 2 of Section 81, precisely because the
constitutional power to prescribe the sharing of mining income between the State
and mining companies, to quote Justice Carpio pursuant to an FTAA is constitutionally
lodged with the President, not with Congress. It thus makes no sense to persist in
giving the phrase among other things a restricted meaning referring only to taxes, duties
and fees.
13. Strangely, Justice Carpio claims that the DENR secretary can change the formulae
in DAO 99-56 any time even without the approval of the President, and the secretary is
the sole authority to determine the amount of consideration that the State shall receive in
an FTAA, because Section 5 of the DAO states that xxx any amendment of an FTAA other
than the provision on fiscal regime shall require the negotiation with the Negotiation Panel
and the recommendation of the Secretary for approval of the President xxx. Allegedly,
because of that provision, if an amendment in the FTAA involves non-fiscal matters, the
amendment requires approval of the President, but if the amendment involves a change in
the fiscal regime, the DENR secretary has the final authority, and approval of the
President may be dispensed with; hence the secretary is more powerful than the
President.
We believe there is some distortion resulting from the quoted provision being taken out
of context. Section 5 of DAO 99-56 reads as follows:

Section 5. Status of Existing FTAAs. All FTAAs approved prior to the effectivity of this
Administrative Order shall remain valid and be recognized by the Government: Provided, That
should a Contractor desire to amend its FTAA, it shall do so by filing a Letter of Intent (LOI) to the
Secretary thru the Director. Provided, further, That if the Contractor desires to amend the fiscal
regime of its FTAA, it may do so by seeking for the amendment of its FTAAs whole fiscal regime
by adopting the fiscal regime provided hereof: Provided, finally, That any amendment of an FTAA
other than the provision on fiscal regime shall require the negotiation with the Negotiating Panel
and the recommendation of the Secretary for approval of the President of the Republic of the
Philippines. (underscoring supplied)

It looks like another case of misapprehension. The proviso being objected to by Justice
Carpio is actually preceded by a phrase that requires a contractor desiring to amend the
fiscal regime of its FTAA, to amend the same by adopting the fiscal regime prescribed in
DAO 99-56 -- i.e., solely in that manner, and in no other. Obviously, since DAO 99-56
was issued by the secretary under the authority and with the presumed approval of
the President, the amendment of an FTAA by merely adopting the fiscal
regime prescribed in said DAO 99-56 (and nothing more) need not have the express
clearance of the President anymore. It is as if the same had been pre-approved. We
cannot fathom the complaint that that makes the secretary more powerful than the
President, or that the former is trying to hide things from the President or Congress.
14. Based on the first sentence of Section 5 of DAO 99-56, which states [A]ll FTAAs
approved prior to the effectivity of this Administrative Order shall remain valid and be
recognized by the Government, Justice Carpio concludes that said Administrative Order
allegedly exempts FTAAs approved prior to its effectivity -- like the WMCP FTAA -- from
having to pay the State any share from their mining income, apart from taxes, duties and
fees.
We disagree. What we see in black and white is the statement that the FTAAs
approved before the DAO came into effect are to continue to be valid and will be
recognized by the State. Nothing is said about their fiscal regimes. Certainly, there is no
basis to claim that the contractors under said FTAAs were being exempted from paying
the government a share in their mining incomes.
For the record, the WMCP FTAA is NOT and has never been exempt from paying the
government share. The WMCP FTAA has its own fiscal regime -- Section 7.7 -- which
gives the government a 60 percent share in the net mining revenues of WMCP from
the commencement of commercial production.
For that very reason, we have never said that DAO 99-56 is the basis for claiming that
the WMCP FTAA has a consideration. Hence, we find quite out of place Justice Carpios
statement that ironically, DAO 99-56, the very authority cited to support the claim that the
WMCP FTAA has a consideration, does not apply to the WMCP FTAA. By its own express
terms, DAO 99-56 does not apply to FTAAs executed before the issuance of DAO 99-56,
like the WMCP FTAA. The majoritys position has allegedly no leg to stand on since even
DAO 99-56, assuming it is valid, cannot save the WMCP FTAA from want of
consideration. Even assuming arguendo that DAO 99-56 does not apply to the WMCP
FTAA, nevertheless, the WMCP FTAA has its own fiscal regime, found in Section 7.7
thereof. Hence, there is no such thing as want of consideration here.
Still more startling is this claim: The majority supposedly agrees that the provisions of
the WMCP FTAA, which grant a sham consideration to the State, are void. Since the
majority agrees that the WMCP FTAA has a sham consideration, the WMCP FTAA thus
lacks the third element of a valid contract. The Decision should declare the WMCP FTAA
void for want of consideration unless it treats the contract as an MPSA under Section 80.
Indeed the only recourse of WMCP to save the validity of its contract is to convert it into
an MPSA.
To clarify, we said that Sections 7.9 and 7.8(e) of the WMCP FTAA are provisions
grossly disadvantageous to government and detrimental to the interests of the Filipino
people, as well as violative of public policy, and must therefore be stricken off as invalid.
Since the offending provisions are very much separable from Section 7.7 and the rest of
the FTAA, the deletion of Sections 7.9 and 7.8(e) can be done without affecting or
requiring the invalidation of the WMCP FTAA itself, and such deletion will preserve for
government its due share of the 60 percent benefits. Therefore, the WMCP FTAA is NOT
bereft of a valid consideration (assuming for the nonce that indeed this is the
consideration of the FTAA).

SUMMATION

To conclude, a summary of the key points discussed above is now in order.

The Meaning of Agreements Involving


Either Technical or Financial Assistance
Applying familiar principles of constitutional construction to the phrase agreements
involving either technical or financial assistance, the framers choice of words does not
indicate the intent to exclude other modes of assistance, but rather implies that there
are other things being included or possibly being made part of the agreement, apart from
financial or technical assistance. The drafters avoided the use of restrictive and stringent
phraseology; a verba legis scrutiny of Section 2 of Article XII of the Constitution discloses
not even a hint of a desire to prohibit foreign involvement in the management or operation
of mining activities, or to eradicate service contracts. Such moves would necessarily imply
an underlying drastic shift in fundamental economic and developmental policies of the
State. That change requires a much more definite and irrefutable basis than mere
omission of the words service contract from the new Constitution.
Furthermore, a literal and restrictive interpretation of this paragraph leads to logical
inconsistencies. A constitutional provision specifically allowing foreign-owned corporations
to render financial or technical assistance in respect of mining or any other commercial
activity was clearly unnecessary; the provision was meant to refer to more than mere
financial or technical assistance.
Also, if paragraph 4 permits only agreements for financial or technical assistance,
there would be no point in requiring that they be based on real contributions to the
economic growth and general welfare of the country. And considering that there were
various long-term service contracts still in force and effect at the time the new Charter was
being drafted, the absence of any transitory provisions to govern the termination and
closing-out of the then existing service contracts strongly militates against the theory that
the mere omission of service contracts signaled their prohibition by the new Constitution.
Resort to the deliberations of the Constitutional Commission is therefore unavoidable,
and a careful scrutiny thereof conclusively shows that the ConCom members
discussed agreements involving either technical or financial assistance in the same sense
as service contracts and used the terms interchangeably. The drafters in fact knew that
the agreements with foreign corporations were going to entail not mere technical or
financial assistance but, rather, foreign investment in and management of an enterprise
for large-scale exploration, development and utilization of minerals.
The framers spoke about service contracts as the concept was understood in the 1973
Constitution. It is obvious from their discussions that they did not intend to ban or eradicate
service contracts. Instead, they were intent on crafting provisions to put in place safeguards
that would eliminate or minimize the abuses prevalent during the martial law regime. In brief,
they were going to permit service contracts with foreign corporations as contractors,
but with safety measures to prevent abuses, as an exception to the general norm
established in the first paragraph of Section 2 of Article XII, which reserves or limits to
Filipino citizens and corporations at least 60 percent owned by such citizens the
exploration, development and utilization of mineral or petroleum resources. This was
prompted by the perceived insufficiency of Filipino capital and the felt need for foreign
expertise in the EDU of mineral resources.
Despite strong opposition from some ConCom members during the final voting, the
Article on the National Economy and Patrimony -- including paragraph 4 allowing service
contracts with foreign corporations as an exception to the general norm in paragraph 1 of
Section 2 of the same Article -- was resoundingly and overwhelmingly approved.
The drafters, many of whom were economists, academicians, lawyers,
businesspersons and politicians knew that foreign entities will not enter into agreements
involving assistance without requiring measures of protection to ensure the success of the
venture and repayment of their investments, loans and other financial assistance, and
ultimately to protect the business reputation of the foreign corporations. The drafters, by
specifying such agreements involving assistance, necessarily gave implied assent to
everything that these agreements entailed or that could reasonably be deemed necessary
to make them tenable and effective -- including management authority with respect to the
day-to-day operations of the enterprise, and measures for the protection of the interests of
the foreign corporation, at least to the extent that they are consistent with Philippine
sovereignty over natural resources, the constitutional requirement of State control, and
beneficial ownership of natural resources remaining vested in the State.
From the foregoing, it is clear that agreements involving either technical or financial
assistance referred to in paragraph 4 are in fact service contracts, but such new service
contracts are between foreign corporations acting as contractors on the one hand, and on
the other hand government as principal or owner (of the works), whereby the foreign
contractor provides the capital, technology and technical know-how, and managerial
expertise in the creation and operation of the large-scale mining/extractive enterprise, and
government through its agencies (DENR, MGB) actively exercises full control and
supervision over the entire enterprise.
Such service contracts may be entered into only with respect to minerals, petroleum
and other mineral oils. The grant of such service contracts is subject to several
safeguards, among them: (1) that the service contract be crafted in accordance with a
general law setting standard or uniform terms, conditions and requirements; (2) the
President be the signatory for the government; and (3) the President report the executed
agreement to Congress within thirty days.

Ultimate Test:
Full State Control

To repeat, the primacy of the principle of the States sovereign ownership of all mineral
resources, and its full control and supervision over all aspects of exploration, development
and utilization of natural resources must be upheld. But full control and supervision cannot
be taken literally to mean that the State controls and supervises everything down to the
minutest details and makes all required actions, as this would render impossible the
legitimate exercise by the contractor of a reasonable degree of management prerogative
and authority, indispensable to the proper functioning of the mining enterprise. Also,
government need not micro-manage mining operations and day-to-day affairs of the
enterprise in order to be considered as exercising full control and supervision.
Control, as utilized in Section 2 of Article XII, must be taken to mean a degree of
control sufficient to enable the State to direct, restrain, regulate and govern the affairs of
the extractive enterprises. Control by the State may be on a macro level, through the
establishment of policies, guidelines, regulations, industry standards and similar measures
that would enable government to regulate the conduct of affairs in various enterprises,
and restrain activities deemed not desirable or beneficial, with the end in view of ensuring
that these enterprises contribute to the economic development and general welfare of the
country, conserve the environment, and uplift the well-being of the local affected
communities. Such a degree of control would be compatible with permitting the foreign
contractor sufficient and reasonable management authority over the enterprise it has
invested in, to ensure efficient and profitable operation.

Government Granted Full Control


by RA 7942 and DAO 96-40

Baseless are petitioners sweeping claims that RA 7942 and its Implementing Rules
and Regulations make it possible for FTAA contracts to cede full control and management
of mining enterprises over to fully foreign owned corporations. Equally wobbly is the
assertion that the State is reduced to a passive regulator dependent on submitted plans
and reports, with weak review and audit powers and little say in the decision-making of the
enterprise, for which reasons beneficial ownership of the mineral resources is allegedly
ceded to the foreign contractor.
As discussed hereinabove, the States full control and supervision over mining
operations are ensured through the following provisions in RA 7942: Sections 8, 9, 16, 19,
24, 35[(b), (e), (f), (g), (h), (k), (l), (m) and (o)], 40, 57, 66, 69, 70, and Chapters XI and
XVII; as well as the following provisions of DAO 96-40: Sections7[(d) and (f)], 35(a-2),
53[(a-4) and (d)], 54, 56[(g), (h), (l), (m) and (n)], 56(2), 60, 66, 144, 168, 171 and 270,
and also Chapters XV, XVI and XXIV.
Through the foregoing provisions, the government agencies concerned are
empowered to approve or disapprove -- hence, in a position to influence, direct, and
change -- the various work programs and the corresponding minimum expenditure
commitments for each of the exploration, development and utilization phases of the
enterprise. Once they have been approved, the contractors compliance with its
commitments therein will be monitored. Figures for mineral production and sales are
regularly monitored and subjected to government review, to ensure that the products and
by-products are disposed of at the best prices; copies of sales agreements have to be
submitted to and registered with MGB.
The contractor is mandated to open its books of accounts and records for scrutiny, to
enable the State to determine that the government share has been fully paid. The State
may likewise compel compliance by the contractor with mandatory requirements on mine
safety, health and environmental protection, and the use of anti-pollution technology and
facilities. The contractor is also obligated to assist the development of the mining
community, and pay royalties to the indigenous peoples concerned. And violation of any of
the FTAAs terms and conditions, and/or non-compliance with statutes or regulations, may
be penalized by cancellation of the FTAA. Such sanction is significant to a contractor who
may have yet to recover the tens or hundreds of millions of dollars sunk into a mining
project.
Overall, the State definitely has a pivotal say in the operation of the individual
enterprises, and can set directions and objectives, detect deviations and non-compliances
by the contractor, and enforce compliance and impose sanctions should the occasion
arise. Hence, RA 7942 and DAO 96-40 vest in government more than a sufficient degree
of control and supervision over the conduct of mining operations.
Section 3(aq) of RA 7942 was objected to as being unconstitutional for allowing a
foreign contractor to apply for and hold an exploration permit. During the exploration
phase, the permit grantee (and prospective contractor) is spending and investing heavily
in exploration activities without yet being able to extract minerals and generate revenues.
The exploration permit issued under Sections 3(aq), 20 and 23 of RA 7942, which allows
exploration but not extraction, serves to protect the interests and rights of the exploration
permit grantee (and would-be contractor), foreign or local. Otherwise, the exploration
works already conducted, and expenditures already made, may end up only benefiting
claim-jumpers. Thus, Section 3(aq) of RA 7942 is not unconstitutional.

WMCP FTAA Likewise Gives the


State Full Control and Supervision

The WMCP FTAA obligates the contractor to account for the value of production and
sale of minerals (Clause 1.4); requires that the contractors work program, activities and
budgets be approved by the State (Clause 2.1); gives the DENR secretary power to
extend the exploration period (Clause 3.2-a); requires approval by the State for
incorporation of lands into the contract area (Clause 4.3-c); requires Bureau of Forest
Development approval for inclusion of forest reserves as part of the FTAA contract area
(Clause 4.5); obligates the contractor to periodically relinquish parts of the contract area
not needed for exploration and development (Clause 4.6); requires submission of a
declaration of mining feasibility for approval by the State (Clause 4.6-b); obligates the
contractor to report to the State the results of its exploration activities (Clause 4.9);
requires the contractor to obtain State approval for its work programs for the succeeding
two year periods, containing the proposed work activities and expenditures budget related
to exploration (Clause 5.1); requires the contractor to obtain State approval for its
proposed expenditures for exploration activities (Clause 5.2); requires the contractor to
submit an annual report on geological, geophysical, geochemical and other information
relating to its explorations within the FTAA area (Clause 5.3-a); requires the contractor to
submit within six months after expiration of exploration period a final report on all its
findings in the contract area (Clause 5.3-b); requires the contractor after conducting
feasibility studies to submit a declaration of mining feasibility, along with a description of
the area to be developed and mined, a description of the proposed mining operations and
the technology to be employed, and the proposed work program for the development
phase, for approval by the DENR secretary (Clause 5.4); obligates the contractor to
complete the development of the mine, including construction of the production facilities,
within the period stated in the approved work program (Clause 6.1); requires the
contractor to submit for approval a work program covering each period of three fiscal
years (Clause 6.2); requires the contractor to submit reports to the secretary on the
production, ore reserves, work accomplished and work in progress, profile of its work force
and management staff, and other technical information (Clause 6.3); subjects any
expansions, modifications, improvements and replacements of mining facilities to the
approval of the secretary (Clause 6.4); subjects to State control the amount of funds that
the contractor may borrow within the Philippines (Clause 7.2); subjects to State
supervisory power any technical, financial and marketing issues (Clause 10.1-a); obligates
the contractor to ensure 60 percent Filipino equity in the contractor within ten years of
recovering specified expenditures unless not so required by subsequent legislation
(Clause 10.1); gives the State the right to terminate the FTAA for unremedied substantial
breach thereof by the contractor (Clause 13.2); requires State approval for any
assignment of the FTAA by the contractor to an entity other than an affiliate (Clause 14.1).
In short, the aforementioned provisions of the WMCP FTAA, far from constituting a
surrender of control and a grant of beneficial ownership of mineral resources to the
contractor in question, vest the State with control and supervision over practically all
aspects of the operations of the FTAA contractor, including the charging of pre-operating
and operating expenses, and the disposition of mineral products.
There is likewise no relinquishment of control on account of specific provisions of the
WMCP FTAA. Clause 8.2 provides a mechanism to prevent the mining operations from
grinding to a complete halt as a result of possible delays of more than 60 days in the
governments processing and approval of submitted work programs and budgets. Clause
8.3 seeks to provide a temporary, stop-gap solution in case a disagreement between the
State and the contractor (over the proposed work program or budget submitted by the
contractor) should result in a deadlock or impasse, to avoid unreasonably long delays in
the performance of the works.
The State, despite Clause 8.3, still has control over the contract area, and it may, as
sovereign authority, prohibit work thereon until the dispute is resolved, or it may terminate
the FTAA, citing substantial breach thereof. Hence, the State clearly retains full and
effective control.
Clause 8.5, which allows the contractor to make changes to approved work programs
and budgets without the prior approval of the DENR secretary, subject to certain
limitations with respect to the variance/s, merely provides the contractor a certain amount
of flexibility to meet unexpected situations, while still guaranteeing that the approved work
programs and budgets are not abandoned altogether. And if the secretary disagrees with
the actions taken by the contractor in this instance, he may also resort to
cancellation/termination of the FTAA as the ultimate sanction.
Clause 4.6 of the WMCP FTAA gives the contractor discretion to select parts of the
contract area to be relinquished. The State is not in a position to substitute its judgment for
that of the contractor, who knows exactly which portions of the contract area do not
contain minerals in commercial quantities and should be relinquished. Also, since the
annual occupation fees paid to government are based on the total hectarage of the
contract area, net of the areas relinquished, the contractors self-interest will assure proper
and efficient relinquishment.
Clause 10.2(e) of the WMCP FTAA does not mean that the contractor can compel
government to use its power of eminent domain. It contemplates a situation in which the
contractor is a foreign-owned corporation, hence, not qualified to own land. The contractor
identifies the surface areas needed for it to construct the infrastructure for mining
operations, and the State then acquires the surface rights on behalf of the former. The
provision does not call for the exercise of the power of eminent domain (or determination
of just compensation); it seeks to avoid a violation of the anti-dummy law.
Clause 10.2(l) of the WMCP FTAA giving the contractor the right to mortgage and
encumber the mineral products extracted may have been a result of conditions imposed
by creditor-banks to secure the loan obligations of WMCP. Banks lend also upon the
security of encumbrances on goods produced, which can be easily sold and converted
into cash and applied to the repayment of loans. Thus, Clause 10.2(l) is not something out
of the ordinary. Neither is it objectionable, because even though the contractor is allowed
to mortgage or encumber the mineral end-products themselves, the contractor is not
thereby relieved of its obligation to pay the government its basic and additional shares in
the net mining revenue. The contractors ability to mortgage the minerals does not negate
the States right to receive its share of net mining revenues.
Clause 10.2(k) which gives the contractor authority to change its equity structure at
any time, means that WMCP, which was then 100 percent foreign owned, could permit
Filipino equity ownership. Moreover, what is important is that the contractor, regardless of
its ownership, is always in a position to render the services required under the FTAA,
under the direction and control of the government.
Clauses 10.4(e) and (i) bind government to allow amendments to the FTAA if required
by banks and other financial institutions as part of the conditions of new lendings. There is
nothing objectionable here, since Clause 10.4(e) also provides that such financing
arrangements should in no event reduce the contractors obligations or the governments
rights under the FTAA. Clause 10.4(i) provides that government shall favourably consider
any request for amendments of this agreement necessary for the contractor to
successfully obtain financing. There is no renunciation of control, as the proviso does not
say that government shall automatically grant any such request. Also, it is up to the
contractor to prove the need for the requested changes. The government always has the
final say on whether to approve or disapprove such requests.
In fine, the FTAA provisions do not reduce or abdicate State control.

No Surrender of
Financial Benefits

The second paragraph of Section 81 of RA 7942 has been denounced for allegedly
limiting the States share in FTAAs with foreign contractors to just taxes, fees and duties,
and depriving the State of a share in the after-tax income of the enterprise. However, the
inclusion of the phrase among other things in the second paragraph of Section 81 clearly
and unmistakably reveals the legislative intent to have the State collect more than just the
usual taxes, duties and fees.
Thus, DAO 99-56, the Guidelines Establishing the Fiscal Regime of Financial or
Technical Assistance Agreements, spells out the financial benefits government will receive
from an FTAA, as consisting of not only a basic government share, comprised of all
direct taxes, fees and royalties, as well as other payments made by the contractor during
the term of the FTAA, but also an additional government share, being a share in the
earnings or cash flows of the mining enterprise, so as to achieve a fifty-fifty sharing of
net benefits from mining between the government and the contractor.
The additional government share is computed using one of three (3) options or
schemes detailed in DAO 99-56, viz., (1) the fifty-fifty sharing of cumulative present value
of cash flows; (2) the excess profit-related additional government share; and (3) the
additional sharing based on the cumulative net mining revenue. Whichever option or
computation is used, the additional government share has nothing to do with taxes, duties,
fees or charges. The portion of revenues remaining after the deduction of the basic and
additional government shares is what goes to the contractor.
The basic government share and the additional government share do not yet take into
account the indirect taxes and other financial contributions of mining projects, which are
real and actual benefits enjoyed by the Filipino people; if these are taken into account,
total government share increases to 60 percent or higher (as much as 77 percent, and 89
percent in one instance) of the net present value of total benefits from the project.
The third or last paragraph of Section 81 of RA 7942 is slammed for deferring the
payment of the government share in FTAAs until after the contractor shall have recovered
its pre-operating expenses, exploration and development expenditures. Allegedly, the
collection of the States share is rendered uncertain, as there is no time limit in RA 7942 for
this grace period or recovery period. But although RA 7942 did not limit the grace period,
the concerned agencies (DENR and MGB) in formulating the 1995 and 1996
Implementing Rules and Regulations provided that the period of recovery, reckoned from
the date of commercial operation, shall be for a period not exceeding five years, or until
the date of actual recovery, whichever comes earlier.
And since RA 7942 allegedly does not require government approval for the pre-
operating, exploration and development expenses of the foreign contractors, it is feared
that such expenses could be bloated to wipe out mining revenues anticipated for 10 years,
with the result that the States share is zero for the first 10 years. However, the argument is
based on incorrect information.
Under Section 23 of RA 7942, the applicant for exploration permit is required to submit
a proposed work program for exploration, containing a yearly budget of proposed
expenditures, which the State passes upon and either approves or rejects; if approved,
the same will subsequently be recorded as pre-operating expenses that the contractor will
have to recoup over the grace period.
Under Section 24, when an exploration permittee files with the MGB a declaration of
mining project feasibility, it must submit a work program for development, with
corresponding budget, for approval by the Bureau, before government may grant an FTAA
or MPSA or other mineral agreements; again, government has the opportunity to approve
or reject the proposed work program and budgeted expenditures for development works,
which will become the pre-operating and development costs that will have to be
recovered. Government is able to know ahead of time the amounts of pre-operating and
other expenses to be recovered, and the approximate period of time needed therefor. The
aforecited provisions have counterparts in Section 35, which deals with the terms and
conditions exclusively applicable to FTAAs. In sum, the third or last paragraph of Section
81 of RA 7942 cannot be deemed defective.
Section 80 of RA 7942 allegedly limits the States share in a mineral production-sharing
agreement (MPSA) to just the excise tax on the mineral product, i.e., only 2 percent of
market value of the minerals. The colatilla in Section 84 reiterates the same limitation in
Section 80. However, these two provisions pertain only to MPSAs, and have no
application to FTAAs. These particular provisions do not come within the issues
defined by this Court. Hence, on due process grounds, no pronouncement can be
made in this case in respect of the constitutionality of Sections 80 and 84.
Section 112 is disparaged for reverting FTAAs and all mineral agreements to the old
license, concession or lease system, because it allegedly effectively reduces the
government share in FTAAs to just the 2 percent excise tax which pursuant to Section 80
comprises the government share in MPSAs. However, Section 112 likewise does not
come within the issues delineated by this Court, and was never touched upon by the
parties in their pleadings. Moreover, Section 112 may not properly apply to FTAAs. The
mining law obviously meant to treat FTAAs as a breed apart from mineral agreements.
There is absolutely no basis to believe that the law intends to exact from FTAA contractors
merely the same government share (i.e., the 2 percent excise tax) that it apparently
demands from contractors under the three forms of mineral agreements.
While there is ground to believe that Sections 80, 84 and 112 are indeed
unconstitutional, they cannot be ruled upon here. In any event, they are separable; thus, a
later finding of nullity will not affect the rest of RA 7942.
In fine, the challenged provisions of RA 7942 cannot be said to surrender
financial benefits from an FTAA to the foreign contractors.
Moreover, there is no concrete basis for the view that, in FTAAs with a foreign
contractor, the State must receive at least 60 percent of the after-tax income from the
exploitation of its mineral resources, and that such share is the equivalent of the
constitutional requirement that at least 60 percent of the capital, and hence 60 percent of
the income, of mining companies should remain in Filipino hands. Even if the State is
entitled to a 60 percent share from other mineral agreements (CPA, JVA and MPSA), that
would not create a parallel or analogous situation for FTAAs. We are dealing with an
essentially different equation. Here we have the old apples and oranges syndrome.
The Charter did not intend to fix an iron-clad rule of 60 percent share, applicable to all
situations, regardless of circumstances. There is no indication of such an intention on the
part of the framers. Moreover, the terms and conditions of petroleum FTAAs cannot serve
as standards for mineral mining FTAAs, because the technical and operational
requirements, cost structures and investment needs of off-shore petroleum
exploration and drilling companies do not have the remotest resemblance to those
of on-shore mining companies.
To take the position that governments share must be not less than 60 percent of after-
tax income of FTAA contractors is nothing short of this Court dictating upon the
government. The State resultantly ends up losing control. To avoid compromising the
States full control and supervision over the exploitation of mineral resources, there must
be no attempt to impose a minimum 60 percent rule. It is sufficient that the State has the
power and means, should it so decide, to get a 60 percent share (or greater); and it is not
necessary that the State does so in every case.

Invalid Provisions of
the WMCP FTAA

Section 7.9 of the WMCP FTAA clearly renders illusory the States 60 percent share of
WMCPs revenues. Under Section 7.9, should WMCPs foreign stockholders (who originally
owned 100 percent of the equity) sell 60 percent or more of their equity to a Filipino citizen
or corporation, the State loses its right to receive its share in net mining revenues under
Section 7.7, without any offsetting compensation to the State. And what is given to the
State in Section 7.7 is by mere tolerance of WMCPs foreign stockholders,who can at any
time cut off the governments entire share by simply selling 60 percent of WMCPs equity
to a Philippine citizen or corporation.
In fact, the sale by WMCPs foreign stockholder on January 23, 2001 of the entire
outstanding equity in WMCP to Sagittarius Mines, Inc., a domestic corporation at least 60
percent Filipino owned, can be deemed to have automatically triggered the operation of
Section 7.9 and removed the States right to receive its 60 percent share. Section 7.9 of
the WMCP FTAA has effectively given away the States share without anything in
exchange.
Moreover, it constitutes unjust enrichment on the part of the local and foreign
stockholders in WMCP, because by the mere act of divestment, the local and foreign
stockholders get a windfall, as their share in the net mining revenues of WMCP is
automatically increased, without having to pay anything for it.
Being grossly disadvantageous to government and detrimental to the Filipino people,
as well as violative of public policy, Section 7.9 must therefore be stricken off as invalid.
The FTAA in question does not involve mere contractual rights but, being impressed as it
is with public interest, the contractual provisions and stipulations must yield to the
common good and the national interest. Since the offending provision is very much
separable from the rest of the FTAA, the deletion of Section 7.9 can be done without
affecting or requiring the invalidation of the entire WMCP FTAA itself.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the sums spent
by government for the benefit of the contractor to be deductible from the States share in
net mining revenues, it results in benefiting the contractor twice over. This
constitutes unjust enrichment on the part of the contractor, at the expense of government.
For being grossly disadvantageous and prejudicial to government and contrary to public
policy, Section 7.8(e) must also be declared without effect. It may likewise be stricken off
without affecting the rest of the FTAA.

EPILOGUE

AFTER ALL IS SAID AND DONE, it is clear that there is unanimous agreement in the
Court upon the key principle that the State must exercise full control and supervision over
the exploration, development and utilization of mineral resources.
The crux of the controversy is the amount of discretion to be accorded the Executive
Department, particularly the President of the Republic, in respect of negotiations over the
terms of FTAAs, particularly when it comes to the government share of financial benefits
from FTAAs. The Court believes that it is not unconstitutional to allow a wide degree of
discretion to the Chief Executive, given the nature and complexity of such agreements, the
humongous amounts of capital and financing required for large-scale mining operations, the
complicated technology needed, and the intricacies of international trade, coupled with the
States need to maintain flexibility in its dealings, in order to preserve and enhance our
countrys competitiveness in world markets.
We are all, in one way or another, sorely affected by the recently reported scandals
involving corruption in high places, duplicity in the negotiation of multi-billion peso
government contracts, huge payoffs to government officials, and other malfeasances; and
perhaps, there is the desire to see some measures put in place to prevent further
abuse. However, dictating upon the President what minimum share to get from an
FTAA is not the solution. It sets a bad precedent since such a move institutionalizesthe
very reduction if not deprivation of the States control. The remedy may be worse than the
problem it was meant to address. In any event, provisions in such future agreements
which may be suspected to be grossly disadvantageous or detrimental to government may
be challenged in court, and the culprits haled before the bar of justice.
Verily, under the doctrine of separation of powers and due respect for co-equal and
coordinate branches of government, this Court must restrain itself from intruding into
policy matters and must allow the President and Congress maximum discretion in using
the resources of our country and in securing the assistance of foreign groups to eradicate
the grinding poverty of our people and answer their cry for viable employment
opportunities in the country.
The judiciary is loath to interfere with the due exercise by coequal branches of
government of their official functions.[99] As aptly spelled out seven decades ago by Justice
George Malcolm, Just as the Supreme Court, as the guardian of constitutional rights,
should not sanction usurpations by any other department of government, so should it as
strictly confine its own sphere of influence to the powers expressly or by implication
conferred on it by the Organic Act.[100] Let the development of the mining industry be the
responsibility of the political branches of government. And let not this Court interfere
inordinately and unnecessarily.
The Constitution of the Philippines is the supreme law of the land. It is the repository of
all the aspirations and hopes of all the people. We fully sympathize with the plight of
Petitioner La Bugal Blaan and other tribal groups, and commend their efforts to uplift their
communities. However, we cannot justify the invalidation of an otherwise constitutional
statute along with its implementing rules, or the nullification of an otherwise legal and
binding FTAA contract.
We must never forget that it is not only our less privileged brethren in tribal and cultural
communities who deserve the attention of this Court; rather, all parties concerned --
including the State itself, the contractor (whether Filipino or foreign), and the vast majority
of our citizens -- equally deserve the protection of the law and of this Court. To stress, the
benefits to be derived by the State from mining activities must ultimately serve the great
majority of our fellow citizens. They have as much right and interest in the proper and well-
ordered development and utilization of the countrys mineral resources as the petitioners.
Whether we consider the near term or take the longer view, we cannot overemphasize
the need for an appropriate balancing of interests and needs -- the need to develop
our stagnating mining industry and extract what NEDA Secretary Romulo Neri estimates is
some US$840 billion (approx. PhP47.04 trillion) worth of mineral wealth lying hidden in the
ground, in order to jumpstart our floundering economy on the one hand, and on the other,
the need to enhance our nationalistic aspirations, protect our indigenous communities,
and prevent irreversible ecological damage.
This Court cannot but be mindful that any decision rendered in this case will ultimately
impact not only the cultural communities which lodged the instant Petition, and not only
the larger community of the Filipino people now struggling to survive amidst a
fiscal/budgetary deficit, ever increasing prices of fuel, food, and essential commodities and
services, the shrinking value of the local currency, and a government hamstrung in its
delivery of basic services by a severe lack of resources, but also countless future
generations of Filipinos.
For this latter group of Filipinos yet to be born, their eventual access to education,
health care and basic services, their overall level of well-being, the very shape of their
lives are even now being determined and affected partly by the policies and directions
being adopted and implemented by government today. And in part by the this Resolution
rendered by this Court today.
Verily, the mineral wealth and natural resources of this country are meant to benefit not
merely a select group of people living in the areas locally affected by mining activities, but
the entire Filipino nation, present and future, to whom the mineral wealth really belong.
This Court has therefore weighed carefully the rights and interests of all concerned, and
decided for the greater good of the greatest number. JUSTICE FOR ALL, not just for
some; JUSTICE FOR THE PRESENT AND THE FUTURE, not just for the here and now.
WHEREFORE, the Court RESOLVES to GRANT the respondents and the intervenors
Motions for Reconsideration; to REVERSE and SET ASIDE this Courts January 27, 2004
Decision; to DISMISS the Petition; and to issue this new judgment
declaring CONSTITUTIONAL (1) Republic Act No. 7942 (the Philippine Mining Law), (2)
its Implementing Rules and Regulations contained in DENR Administrative Order (DAO)
No. 9640 -- insofar as they relate to financial and technical assistance agreements
referred to in paragraph 4 of Section 2 of Article XII of the Constitution; and (3) the
Financial and Technical Assistance Agreement (FTAA) dated March 30, 1995 executed by
the government and Western Mining Corporation Philippines Inc. (WMCP), except
Sections 7.8 and 7.9 of the subject FTAA which are hereby INVALIDATED for being
contrary to public policy and for being grossly disadvantageous to the government.
SO ORDERED.
Davide Jr., C.J., Sandoval-Gutierrez, Austria-Martinez, and Garcia, JJ., concur.
Puno, J., in the result and votes to invalidate sections 3.3; 7.8 and 7.9 of the WMC
FTAA.
Quisumbing, J., in the result.
Ynares-Santiago, J., joins dissenting opinion of J. Antonio Carpio & J. Conchita C.
Morales.
Carpio, and Carpio-Morales, JJ., see dissenting opinion.
Corona, J., certifies he voted affirmatively with the majority and he was allowed to do
so although he is on leave.
Callejo, Sr., J., concurs to the dissenting opinion of J. Carpio.
Azcuna, J., took no part-same reason.
Tinga, and Chico-Nazario, JJ., concur with a separate opinion.

THIRD DIVISION
PICOP RESOURCES, INC., G.R. No. 163509
Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
BASE METALS MINERAL
RESOURCES CORPORATION, Promulgated:
and THE MINES ADJUDICATION
BOARD, December 6, 2006
Respondents.
x---------------------------------------------------------------------------x

DECISION

TINGA, J.:

PICOP Resources, Inc. (PICOP) assails the Decision[1] of the Court of Appeals
dated November 28, 2003 and its Resolution[2] dated May 5, 2004, which respectively denied its
petition for review and motion for reconsideration.

The undisputed facts quoted from the appellate courts Decision are as follows:

In 1987, the Central Mindanao Mining and Development Corporation (CMMCI


for brevity) entered into a Mines Operating Agreement (Agreement for brevity)
with Banahaw Mining and Development Corporation (Banahaw Mining for brevity)
whereby the latter agreed to act as Mine Operator for the exploration, development,
and eventual commercial operation of CMMCIs eighteen (18) mining claims located
in Agusan del Sur.

Pursuant to the terms of the Agreement, Banahaw Mining filed applications for
Mining Lease Contracts over the mining claims with the Bureau of Mines. On April
29, 1988, Banahaw Mining was issued a Mines Temporary Permit authorizing it to
extract and dispose of precious minerals found within its mining claims. Upon its
expiration, the temporary permit was subsequently renewed thrice by the Bureau of
Mines, the last being on June 28, 1991.

Since a portion of Banahaw Minings mining claims was located in


petitioner PICOPs logging concession in Agusan del Sur, Banahaw Mining and
petitioner PICOP entered into a Memorandum of Agreement, whereby, in mutual
recognition of each others right to the area concerned, petitioner PICOP
allowed Banahaw Mining an access/right of way to its mining claims.

In 1991, Banahaw Mining converted its mining claims to applications for


Mineral Production Sharing Agreements (MPSA for brevity).

While the MPSA were pending, Banahaw Mining, on December 18, 1996,
decided to sell/assign its rights and interests over thirty-seven (37) mining claims in
favor of private respondent Base Metals Mineral Resources Corporation (Base
Metals for brevity). The transfer included mining claims held by Banahaw Mining in
its own right as claim owner, as well as those covered by its mining operating
agreement with CMMCI.
Upon being informed of the development, CMMCI, as claim owner,
immediately approved the assignment made by Banahaw Mining in favor of private
respondent Base Metals, thereby recognizing private respondent Base Metals as the
new operator of its claims.

On March 10, 1997, private respondent Base Metals


amended Banahaw Minings pending MPSA applications with the Bureau of Mines to
substitute itself as applicant and to submit additional documents in support of the
application. Area clearances from the DENR Regional Director and Superintendent
of the Agusan Marsh and Wildlife Sanctuary were submitted, as required.

On October 7, 1997, private respondent Base Metals amended MPSA


applications were published in accordance with the requirements of the Mining Act
of 1995.

On November 18, 1997, petitioner PICOP filed with the Mines Geo-Sciences
Bureau (MGB), Caraga Regional Office No. XIII an Adverse Claim and/or
Opposition to private respondent Base Metals application on the following grounds:

I. THE APPROVAL OF THE APPLICATION AND ISSUANCE OF THE


MPSA OF BASE METALS WILL VIOLATE THE
CONSTITUTIONAL MANDATE AGAINST IMPAIRMENT OF
OBLIGATION IN A CONTRACT.

II. THE APPROVAL OF THE APPLICATION WILL DEFEAT THE


RIGHTS OF THE HEREIN ADVERSE CLAIMANT AND/OR
OPPOSITOR.

In its Answer to the Adverse Claim and/or Opposition, private respondent Base
Metals alleged that:

a) the Adverse Claim was filed out of time;

b) petitioner PICOP has no rights over the mineral resources on their


concession area. PICOP is asserting a privilege which is not protected by
the non-impairment clause of the Constitution;

c) the grant of the MPSA will not impair the rights of PICOP nor create
confusion, chaos or conflict.

Petitioner PICOPs Reply to the Answer alleged that:

a) the Adverse Claim was filed within the reglementary period;


b) the grant of MPSA will impair the existing rights of petitioner PICOP;

c) the MOA between PICOP and Banahaw Mining provides for


recognition by Banahaw Mining of the Presidential Warranty awarded in
favor of PICOP for the exclusive possession and enjoyment of said
areas.

As a Rejoinder, private respondent Base Metals stated that:

1. it is seeking the right to extract the mineral resources in the applied


areas. It is not applying for any right to the forest resources within the
concession areas of PICOP;

2. timber or forest lands are open to Mining Applications;

3. the grant of the MPSA will not violate the so called presidential fiat;

4. the MPSA application of Base Metals does not require the consent of
PICOP; and

5. it signified its willingness to enter into a voluntary agreement with


PICOP on the matter of compensation for damages. In the absence of
such agreement, the matter will be brought to the Panel of Arbitration in
accordance with law.

In refutation thereto, petitioner PICOP alleged in its Rejoinder that:

a) the Adverse Claim filed thru registered mail was sent on time and as
prescribed by existing mining laws and rules and regulations;

b) the right sought by private respondent Base Metals is not absolute but is
subject to existing rights, such as those which the adverse claimant had,
that have to be recognized and respected in a manner provided and
prescribed by existing laws as will be expounded fully later;

c) as a general rule, mining applications within timber or forest lands are


subject to existing rights as provided in Section 18 of RA 7942 or the
Philippine Mining Act of 1995 and it is an admitted fact by the private
respondent that petitioner PICOP had forest rights as per Presidential
Warranty;

d) while the Presidential Warranty did not expressly state exclusivity, P.D.
705 strengthened the right of occupation, possession and control over the
concession area;
e) the provisions of Section 19 of the Act and Section 15 of IRR expressly
require the written consent of the forest right holder, PICOP.

After the submission of their respective position paper, the Panel Arbitrator
issued an Order dated December 21, 1998, the dispositive portion of which reads as:

WHEREFORE, premises considered, Mineral Production Sharing


Agreement Application Nos. (XIII) 010, 011, 012 of Base Metal
Resources Corporation should be set aside.

The disapproval of private respondent Base Metals MPSA was due to the
following reasons:

Anent the first issue the Panel find (sic) and so hold (sic) that the adverse
claim was filed on time, it being mailed on November 19, 1997, at Metro
Manila as evidenced by Registry Receipt No. 26714. Under the law (sic)
the date of mailing is considered the date of filing.

As to whether or not an MPSA application can be granted on area


subject of an IFMA[3] or PTLA[4] which is covered by a Presidential
Warranty, the panel believes it can not, unless the grantee consents
thereto. Without the grantees consent, the area is considered closed to
mining location (sec. 19) (b) (No. 2), DAO No. 96-40). The Panel
believe (sic) that mining location in forest or timberland is allowed only
if such forest or timberland is not leased by the government to a
qualified person or entity. If it is leased the consent of the lessor is
necessary, in addition to the area clearance to be issued by the agency
concerned before it is subjected to mining operation.

Plantation is considered closed to mining locations because it is off


tangent to mining. Both are extremes. They can not exist at the same
time. The other must necessarily stop before the other operate.

On the other hand, Base Metals Mineral Resources Corporation can not
insist the MPSA application as assignee of Banahaw. PICOP did not
consent to the assignment as embodied in the agreement. Neither did it
ratify the Deed of Assignment. Accordingly, it has no force and effect.
Thus, for lack of consent, the MPSA must fall.

On January 11, 1999, private respondent Base Metals filed a Notice of Appeal
with public respondent MAB and alleged in its Appeal Memorandum the following
arguments:
1. THE CONSENT OF PICOP IS NOT NECESSARY FOR THE
APPROVAL OF BASE METALS MPSA APPLICATION.

2. EVEN ASSUMING SUCH CONSENT IS NECESSARY, PICOP


HAD CONSENTED TO BASE METALS MPSA APPLICATION.

In Answer thereto, petitioner PICOP alleged that:

1. Consent is necessary for the approval of private respondents MPSA


application;

2. Provisions of Memorandum Order No. 98-03 and IFMA 35 are not


applicable to the instant case;

3. Provisions of PD 705[5] connotes exclusivity for timber license


holders; and

4. MOA between private respondents assignor and adverse claimant


provided for the recognition of the latters rightful claim over the
disputed areas.

Private respondent Base Metals claimed in its Reply that:

1. The withholding of consent by PICOP derogates the States power to


supervise and control the exploration, utilization and development of
all natural resources;

2. Memorandum Order No, 98-03, not being a statute but a mere


guideline imposed by the Secretary of the Department of
Environment and Natural Resources (DENR), can be applied
retroactively to MPSA applications which have not yet been finally
resolved;

3. Even assuming that the consent of adverse claimant is necessary for


the approval of Base Metals application (which is denied), such
consent had already been given; and

4. The Memorandum of Agreement between adverse claimant


and Banahaw Mining proves that the Agusan-Surigao area had been
used in the past both for logging and mining operations.
After the filing of petitioner PICOPs Reply Memorandum, public respondent
rendered the assailed decision setting aside the Panel Arbitrators order. Accordingly,
private respondent Base Metals MPSAs were reinstated and given due course subject
to compliance with the pertinent requirements of the existing rules and regulations. [6]

The Court of Appeals upheld the decision of the MAB, ruling that the Presidential
Warranty of September 25, 1968 issued by then President Ferdinand E. Marcos merely
confirmed the timber license granted to PICOP and warranted the latters peaceful and adequate
possession and enjoyment of its concession areas. It was only given upon the request of the
Board of Investments to establish the boundaries of PICOPs timber license agreement. The
Presidential Warranty did not convert PICOPs timber license into a contract because it did not
create any obligation on the part of the government in favor of PICOP. Thus, the non-
impairment clause finds no application.

Neither did the Presidential Warranty grant PICOP the exclusive possession, occupation
and exploration of the concession areas covered. If that were so, the government would have
effectively surrendered its police power to control and supervise the exploration, development
and utilization of the countrys natural resources.

On PICOPs contention that its consent is necessary for the grant of Base Metals MPSA,
the appellate court ruled that the amendment to PTLA No. 47 refers to the grant of gratuitous
permits, which the MPSA subject of this case is not. Further, the amendment pertains to the
cutting and extraction of timber for mining purposes and not to the act of mining itself, the
intention of the amendment being to protect the timber found in PICOPs concession areas.

The Court of Appeals noted that the reinstatement of the MPSA does not ipso
facto revoke, amend, rescind or impair PICOPs timber license. Base Metals still has to comply
with the requirements for the grant of a mining permit. The fact, however, that Base Metals had
already secured the necessary Area Status and Clearance from the DENR means that the areas
applied for are not closed to mining operations.

In its Resolution[7] dated May 5, 2004, the appellate court denied PICOPs Motion for
Reconsideration. It ruled that PICOP failed to substantiate its allegation that the area applied for
is a forest reserve and is therefore closed to mining operations because it did not identify the
particular law which set aside the contested area as one where mining is prohibited pursuant to
applicable laws.
The case is now before us for review.

In its Memorandum[8] dated April 6, 2005, PICOP presents the following issues: (1) the
2,756 hectares subject of Base Metals MPSA are closed to mining operations except
upon PICOPs written consent pursuant to existing laws, rules and regulations and by virtue of
the Presidential Warranty; (2) its Presidential Warranty is protected by the non-impairment
clause of the Constitution; and (3) it does not raise new issues in its petition.

PICOP asserts that its concession areas are closed to mining operations as these are
within the Agusan-Surigao-Davao forest reserve established under Proclamation No. 369 of
then Gov. Gen. Dwight Davis. The area is allegedly also part of permanent forest established
under Republic Act No. 3092 (RA 3092),[9] and overlaps the wilderness area where mining
applications are expressly prohibited under RA 7586.[10] Hence, the area is closed to mining
operations under Sec. 19(f) of RA 7942.[11]

PICOP further asserts that to allow mining over a forest or forest reserve would allegedly
be tantamount to changing the classification of the land from forest to mineral land in violation
of Sec. 4, Art. XII of the Constitution and Sec. 1 of RA 3092.

According to PICOP, in 1962 and 1963, blocks A, B and C within the Agusan-Surigao-
Davao forest reserve under Proclamation No. 369 were surveyed as permanent forest blocks in
accordance with RA 3092. These areas cover PICOPs PTLA No. 47, part of which later became
IFMA No. 35. In turn, the areas set aside as wilderness as in PTLA No. 47 became the initial
components of the NIPAS under Sec. 5(a) of RA 7586. When RA 7942 was signed into law, the
areas covered by the NIPAS were expressly determined as areas where mineral agreements or
financial or technical assistance agreement applications shall not be allowed. PICOP concludes
that since there is no evidence that the permanent forest areas within PTLA No. 47 and IFMA
No. 35 have been set aside for mining purposes, the MAB and the Court of Appeals gravely
erred in reinstating Base Metals MPSA and, in effect, allowing mining exploration and mining-
related activities in the protected areas.

PICOP further argues that under DENR Administrative Order (DAO) No. 96-40
implementing RA 7942, an exploration permit must be secured before mining operations in
government reservations may be undertaken. There being no exploration permit issued
to Banahaw Mining or appended to its MPSA, the MAB and the Court of Appeals should not
have reinstated its application.
PICOP brings to the Courts attention the case of PICOP Resources, Inc. v.
Hon. Heherson T. Alvarez,[12] wherein the Court of Appeals ruled that the Presidential Warranty
issued to PICOP for its TLA No. 43 dated July 29, 1969, a TLA distinct from PTLA No. 47
involved in this case, is a valid contract involving mutual prestations on the part of the
Government and PICOP.

The Presidential Warranty in this case is allegedly not a mere confirmation


of PICOPs timber license but a commitment on the part of the Government that in consideration
of PICOPs investment in the wood-processing business, the Government will assure the
availability of the supply of raw materials at levels adequate to meet projected utilization
requirements. The guarantee that PICOP will have peaceful and adequate possession and
enjoyment of its concession areas is impaired by the reinstatement of Base Metals MPSA in that
the latters mining activities underneath the area in dispute will surely
undermine PICOPs supply of raw materials on the surface.

Base Metals obtention of area status and clearance from the DENR is allegedly
immaterial, even misleading. The findings of the DENR Regional Disrector and the
superintendent of the Agusan Marsh and Wildlife Sanctuary are allegedly misplaced because
the area applied for is not inside the Agusan Marsh but in a permanent forest. Moreover, the
remarks in the area status itself should have been considered by the MAB and the appellate
court as they point out that the application encroaches on surveyed timberland projects declared
as permanent forests/forest reserves.

Finally, PICOP insists that it has always maintained that the forest areas of PTLA No. 47
and IFMA No. 35 are closed to mining operations. The grounds relied upon in this petition are
thus not new issues but merely amplifications, clarifications and detailed expositions of the
relevant constitutional provisions and statutes regulating the use and preservation of forest
reserves, permanent forest, and protected wilderness areas given that the areas subject of the
MPSA are within and overlap PICOPs PTLA No. 47 and IFMA No. 35 which have been
classified and blocked not only as permanent forest but also as protected wilderness area
forming an integral part of the Agusan-Davao-Surigao Forest Reserve.

In its undated Memorandum,[13] Base Metals contends that PICOP never made any
reference to land classification or the exclusion of the contested area from exploration and
mining activities except in the motion for reconsideration it filed with the Court of
Appeals. PICOPs object to the MPSA was allegedly based exclusively on the ground that the
application, if allowed to proceed, would constitute a violation of the constitutional proscription
against impairment of the obligation of contracts. It was upon this issue that the appellate court
hinged its Decision in favor of Base Metals, ruling that the Presidential Warranty merely
confirmed PICOPs timber license. The instant petition, which raises new issues and invokes RA
3092 and RA 7586, is an unwarranted departure from the settled rule that only issues raised in
the proceedings a quo may be elevated on appeal.

Base Metals notes that RA 7586 expressly requires that there be a prior presidential
decree, presidential proclamation, or executive order issued by the President of the Philippines,
expressly proclaiming, designating, and setting aside the wilderness area before the same may
be considered part of the NIPAS as a protected area. Allegedly, PICOP has not shown that such
an express presidential proclamation exists setting aside the subject area as a forest reserve, and
excluding the same from the commerce of man.

PICOP also allegedly misquoted Sec. 19 of RA 7942 by placing a comma between the
words watershed and forest thereby giving an altogether different and misleading interpretation
of the cited provision. The cited provision, in fact, states that for an area to be closed to mining
applications, the same must be a watershed forest reserve duly identified and proclaimed by the
President of the Philippines. In this case, no presidential proclamation exists setting aside the
contested area as such.

Moreover, the Memorandum of Agreement between Banahaw Mining and PICOP is


allegedly a clear and tacit recognition by the latter that the area is open and available for mining
activities and that Banahaw Mining has a right to enter and explore the areas covered by its
mining claims.

Base Metals reiterates that the non-impairment clause is a limit on the exercise of
legislative power and not of judicial or quasi-judicial power. The Constitution prohibits the
passage of a law which enlarges, abridges or in any manner changes the intention of the
contracting parties. The decision of the MAB and the Court of Appeals are not legislative acts
within the purview of the constitutional proscription. Besides, the Presidential Warranty is not a
contract that may be impaired by the reinstatement of the MPSA. It is a mere confirmation
of PICOPs timber license and draws its life from PTLA No. 47. Furthermore, PICOP fails to
show how the reinstatement of the MPSA will impair its timber license.

Following the regalian doctrine, Base Metals avers that the State may opt to enter into
contractual arrangements for the exploration, development, and extraction of minerals even it
the same should mean amending, revising, or even revoking PICOPs timber license. To require
the State to secure PICOPs prior consent before it can enter into such contracts allegedly
constitutes an undue delegation of sovereign power.
Base Metals further notes that Presidential Decree No. 705 (PD 705), under which PTLA
No. 47, IFMA No. 35 and the Presidential Warranty were issued, requires notice to PICOP
rather than consent before any mining activity can be commenced in the latters concession
areas.

The Office of the Solicitor General (OSG) filed a Memorandum [14] dated April 21,
2005 on behalf of the MAB, contending that PICOPs attempt to raise new issues, such as its
argument that the contested area is classified as a permanent forest and hence, closed to mining
activities, is offensive to due process and should not be allowed.

The OSG argues that a timber license is not a contract within the purview of the due
process and non-impairment clauses. The Presidential Warranty merely
guarantees PICOPs tenure over its concession area and covers only the right to cut, collect and
remove timber therein. It is a mere collateral undertaking and cannot amplify PICOPs rights
under its PTLA No. 47 and IFMA No. 35. To hold that the Presidential Warranty is a contract
separate from PICOPs timber license effectively gives the latter PICOP an exclusive, perpetual
and irrevocable right over its concession area and impairs the States sovereign exercise of its
power over the exploration, development, and utilization of natural resources.

The case of PICOP Resources, Inc. v. Hon. Heherson T. Alvarez, supra, cited by PICOP
cannot be relied upon to buttress the latters claim that a presidential warranty is a valid and
subsisting contract between PICOP and the Government because the decision of the appellate
court in that case is still pending review before the Courts Second Division.

The OSG further asserts that mining operations are legally permissible
over PICOPs concession areas. Allegedly, what is closed to mining applications under RA 7942
are areas proclaimed as watershed forest reserves. The law does not totally prohibit mining
operations over forest reserves. On the contrary, Sec. 18 of RA 7942 permits mining over forest
lands subject to existing rights and reservations, and PD 705 allows mining over forest lands
and forest reservations subject to State regulation and mining laws. Sec. 19(a) of RA 7942 also
provides that mineral activities may be allowed even over military and other government
reservations as long as there is a prior written clearance by the government agency concerned.

The area status clearances obtained by Base Metals also allegedly show that the area
covered by the MPSA is within timberland, unclassified public forest, and alienable and
disposable land. Moreover, PICOP allegedly chose to cite portions of Apex Mining Corporation
v. Garcia,[15] to make it appear that the Court in that case ruled that mining is absolutely
prohibited in the Agusan-Surigao-Davao Forest Reserve. In fact, the Court held that the area is
not open to mining location because the proper procedure is to file an application for a permit to
prospect with the Bureau of Forest and Development.

In addition, PICOPs claimed wilderness area has not been designated as a protected area
that would operate to bar mining operations therein. PICOP failed to prove that the alleged
wilderness area has been designated as an initial component of the NIPAS pursuant to a law,
presidential decree, presidential proclamation or executive order. Hence, it cannot correctly
claim that the same falls within the coverage of the restrictive provisions of RA 7586.

The OSG points out that the Administrative Code of 1917 which RA 3092 amended has
been completely repealed by the Administrative Code of 1978. Sec. 4, Art. XII of the 1987
Constitution, on the other hand, provides that Congress shall determine the specific limits of
forest lands and national parks, marking clearly their boundaries on the ground. Once this is
done, the area thus covered by said forest lands and national parks may not be expanded or
reduced except also by congressional legislation. Since Congress has yet to enact a law
determining the specific limits of the forest lands covered by Proclamation No. 369 and
marking clearly its boundaries on the ground, there can be no occasion that could give rise to a
violation of the constitutional provision.

Moreover, Clauses 10 and 14 of PICOPs IFMA No. 35 specifically provides that the area
covered by the agreement is open for mining if public interest so requires. Likewise, PTLA No.
47 provides that the area covered by the license agreement may be opened for mining purposes.

Finally, the OSG maintains that pursuant to the States policy of multiple land use, R.A.
No. 7942 provides for appropriate measures for a harmonized utilization of the forest resources
and compensation for whatever damage done to the property of the surface owner or
concessionaire as a consequence of mining operations. Multiple land use is best demonstrated
by the Memorandum of Agreement between PICOP and Banahaw Mining.

First, the procedural question of whether PICOP is raising new issues in the instant
petition. It is the contention of the OSG and Base Metals that PICOPs argument that the area
covered by the MPSA is classified as permanent forest and therefore closed to mining activities
was raised for the first time in PICOPs motion for reconsideration with the Court of Appeals.

Our own perusal of the records of this case reveals that this is not entirely true.

In its Adverse Claim and/or Opposition[16] dated November 19, 1997 filed with the MGB
Panel of Arbitrators, PICOP already raised the argument that the area applied for by Base
Metals is classified as a permanent forest determined to be needed for forest purposes pursuant
to par. 6, Sec. 3 of PD 705, as amended. PICOP then proceeded to claim that the area should
remain forest land if the purpose of the presidential fiat were to be followed. It stated:

Technically, the areas applied for by Base Metals are classified as a permanent
forest being land of the public domain determined to be needed for forest purposes
(Paragraph 6, Section 3 of Presidential Decree No. 705, as amended) If these areas
then are classified and determined to be needed for forest purpose then they should be
developed and should remain as forest lands. Identifying, delineating and declaring
them for other use or uses defeats the purpose of the aforecited presidential fiats.
Again, if these areas would be delineated from Oppositors forest concession, the
forest therein would be destroyed and be lost beyond recovery.[17]

Base Metals met this argument head on in its Answer[18] dated December 1, 1997, in
which it contended that PD 705 does not exclude mining operations in forest lands but merely
requires that there be proper notice to the licensees of the area.

Again in its Petition[19] dated January 25, 2003 assailing the reinstatement of Base Metals
MPSA, PICOP argued that RA 7942 expressly prohibits mining operations in plantation areas
such as PICOPs concession area. Hence, it posited that the MGB Panel of Arbitrators did not
commit grave abuse of discretion when it ruled that without PICOPs consent, the area is closed
to mining location.

It is true though that PICOP expounded on the applicability of RA 3092, RA 7586, and
RA 7942 for the first time in its motion for reconsideration of the appellate courts Decision. It
was only in its motion for reconsideration that PICOP argued that the area covered by PTLA
No. 47 and IFMA No. 35 are permanent forest lands covered by RA 7586 which cannot be
entered for mining purposes, and shall remain indefinitely as such for forest uses and cannot be
excluded or diverted for other uses except after reclassification through a law enacted by
Congress.

Even so, we hold that that the so-called new issues raised by PICOP are well within the
issues framed by the parties in the proceedings a quo. Thus, they are not, strictly speaking,
being raised for the first time on appeal.[20] Besides, Base Metals and the OSG have been given
ample opportunity, by way of the pleadings filed with this Court, to respond
to PICOPs arguments. It is in the best interest of justice that we settle the crucial question of
whether the concession area in dispute is open to mining activities.
We should state at this juncture that the policy of multiple land use is enshrined in our
laws towards the end that the countrys natural resources may be rationally explored, developed,
utilized and conserved. The Whereas clauses and declaration of policies of PD 705 state:

WHEREAS, proper classification, management and utilization of the lands of


the public domain to maximize their productivity to meet the demands of our
increasing population is urgently needed;

WHEREAS, to achieve the above purpose, it is necessary to reassess the


multiple uses of forest lands and resources before allowing any utilization thereof to
optimize the benefits that can be derived therefrom;
Sec. 2. Policies.The State hereby adopts the following policies:

a) The multiple uses of forest lands shall be oriented to the development


and progress requirements of the country, the advancement of science
and technology, and the public welfare;

In like manner, RA 7942, recognizing the equiponderance between mining and timber
rights, gives a mining contractor the right to enter a timber concession and cut timber therein
provided that the surface owner or concessionaire shall be properly compensated for any
damage done to the property as a consequence of mining operations. The pertinent provisions
on auxiliary mining rights state:

Sec. 72. Timber Rights.Any provision of law to the contrary notwithstanding, a


contractor may be granted a right to cut trees or timber within his mining areas as may
be necessary for his mining operations subject to forestry laws, rules and
regulations: Provided, That if the land covered by the mining area is already covered
by existing timber concessions, the volume of timber needed and the manner of
cutting and removal thereof shall be determined by the mines regional director, upon
consultation with the contractor, the timber concessionair/permittee and the Forest
Management Bureau of the Department: Provided, further, That in case of
disagreement between the contractor and the timber concessionaire, the matter shall
be submitted to the Secretary whose decision shall be final. The contractor shall
perform reforestation work within his mining area in accordance with forestry laws,
rules and regulations.

Sec. 76. Entry into Private Lands and Concession Areas.Subject to prior
notification, holders of mining rights shall not be prevented from entry into private
lands and concession areas by surface owners, occupants, or concessionaires when
conducting mining operations therein: Provided, That any damage done to the
property of the surface owner, occupant, or concessionaire as a consequence of such
operations shall be properly compensated as may be provided for in the implementing
rules and regulations: Provided, further, That to guarantee such compensation, the
person authorized to conduct mining operation shall, prior thereto, post a bond with
the regional director based on the type of properties, the prevailing prices in and
around the area where the mining operations are to be conducted, with surety or
sureties satisfactory to the regional director.

With the foregoing predicates, we shall now proceed to analyze PICOPs averments.

PICOP contends that its concession area is within the Agusan-Surigao-Davao Forest
Reserve established under Proclamation No. 369 and is closed to mining application citing
several paragraphs of Sec. 19 of RA 7942.

The cited provision states:

Sec. 19 Areas Closed to Mining Applications.Mineral agreement or financial or


technical assistance agreement applications shall not be allowed:

(a) In military and other government reservations, except upon prior written
clearance by the government agency concerned;
(d) In areas expressly prohibited by law;
(f) Old growth or virgin forests, proclaimed watershed forest reserves,
wilderness areas, mangrove forests, mossy forests, national parks,
provincial/municipal forests, parks, greenbelts, game refuge and bird sanctuaries as
defined by law in areas expressly prohibited under the National Ingrated Protected
Areas System (NIPAS) under Republic Act No. 7586, Department Administrative
Order No. 25, series of 1992 and other laws. [emphasis supplied]

We analyzed each of the categories under which PICOP claims that its concession area is
closed to mining activities and conclude that PICOPs contention must fail.

Firstly, assuming that the area covered by Base Metals MPSA is a government
reservation, defined as proclaimed reserved lands for specific purposes other than mineral
reservations,[21] such does not necessarily preclude mining activities in the area. Sec. 15(b) of
DAO 96-40 provides that government reservations may be opened for mining applications upon
prior written clearance by the government agency having jurisdiction over such reservation.
Sec. 6 of RA 7942 also provides that mining operations in reserved lands other than
mineral reservations may be undertaken by the DENR, subject to certain limitations. It
provides:

Sec. 6. Other Reservations.Mining operations in reserved lands other than


mineral reservations may be undertaken by the Department, subject to limitations as
herein provided. In the event that the Department cannot undertake such activities,
they may be undertaken by a qualified person in accordance with the rules and
regulations promulgated by the Secretary. The right to develop and utilize the minerals
found therein shall be awarded by the President under such terms and conditions as
recommended by the Director and approved by the Secretary: Provided, That the party
who undertook the exploration of said reservations shall be given priority. The mineral
land so awarded shall be automatically excluded from the reservation during the term
of the agreement: Provided, further, That the right of the lessee of a valid mining
contract existing within the reservation at the time of its establishment shall not be
prejudiced or impaired.

Secondly, RA 7942 does not disallow mining applications in all forest reserves but only
those proclaimed as watershed forest reserves. There is no evidence in this case that the area
covered by Base Metals MPSA has been proclaimed as watershed forest reserves.

Even granting that the area covered by the MPSA is part of the Agusan-Davao-
Surigao Forest Reserve, such does not necessarily signify that the area is absolutely closed to
mining activities. Contrary to PICOPs obvious misreading of our decision in Apex Mining Co.,
Inc. v. Garcia, supra, to the effect that mineral agreements are not allowed in the forest reserve
established under Proclamation 369, the Court in that case actually ruled that pursuant to PD
463 as amended by PD 1385, one can acquire mining rights within forest reserves, such as
the Agusan-Davao-Surigao Forest Reserve, by initially applying for a permit to prospect with
the Bureau of Forest and Development and subsequently for a permit to explore with the
Bureau of Mines and Geosciences.

Moreover, Sec. 18 RA 7942 allows mining even in timberland or forestty subject to


existing rights and reservations. It provides:

Sec. 18. Areas Open to Mining Operations.Subject to any existing rights or


reservations and prior agreements of all parties, all mineral resources in public or
private lands, including timber or forestlands as defined in existing laws, shall be open
to mineral agreements or financial or technical assistance agreement applications. Any
conflict that may arise under this provision shall be heard and resolved by the panel of
arbitrators.
Similarly, Sec. 47 of PD 705 permits mining operations in forest lands which include the
public forest, the permanent forest or forest reserves, and forest reservations.[22] It states:

Sec. 47. Mining Operations.Mining operations in forest lands shall be regulated


and conducted with due regard to protection, development and utilization of other
surface resources. Location, prospecting, exploration, utilization or exploitation of
mineral resources in forest reservations shall be governed by mining laws, rules and
regulations. No location, prospecting, exploration, utilization, or exploitation of
mineral resources inside forest concessions shall be allowed unless proper notice has
been served upon the licensees thereof and the prior approval of the Director, secured.

Significantly, the above-quoted provision does not require that the consent of existing licensees
be obtained but that they be notified before mining activities may be commenced inside forest
concessions.
DENR Memorandum Order No. 03-98, which provides the guidelines in the issuance of
area status and clearance or consent for mining applications pursuant to RA 7942, provides that
timber or forest lands, military and other government reservations, forest reservations, forest
reserves other than critical watershed forest reserves, and existing DENR Project Areas within
timber or forest lands, reservations and reserves, among others, are open to mining applications
subject to area status and clearance.

To this end, area status clearances or land status certifications have been issued to Base
Metals relative to its mining right application, to wit:

II. MPSA No. 010

1. Portion colored green is the area covered by the aforestated Timberland Project
No. 31-E, Block A and Project No. 59-C, Block A, L.C. Map No. 2466 certified
as such on June 30, 1961; and
2. Shaded brown represent CADC claim.[23]

III. MPSA No. 011

1. The area applied covers the Timberland, portion of Project No. 31-E, Block-E,
L.C. Map No. 2468 and Project No. 36-A Block II, Alienable and Disposable
Land, L.C. Map No. 1822, certified as such on June 30, 1961 and January 1,
1955, respectively;
2. The green shade is the remaining portion of Timber Land Project;
3. The portion colored brown is an applied and CADC areas;
4. Red shade denotes alienable and disposable land. [24]

IV. MPSA No. 012


Respectfully returned herewith is the folder of Base Metals Mineral Resources
Corporation, applied under Mineral Production Sharing Agreement (MPSA (XIII)
012), referred to this office per memorandum dated August 5, 1997 for Land status
certification and the findings based on available references file this office, the site
is within the unclassified Public Forest of the LGU, Rosario, Agusan del Sur. The
shaded portion is the wilderness area of PICOP Resources Incorporated (PRI),
Timber License Agreement.[25]

V. MPSA No. 013

1. The area status shaded green falls within Timber Land, portion of Project No.
31-E, Block-A, Project No. 59-C, Block-A, L.C. Map No. 2468 certified as
such on June 30, 1961;
2. Colored brown denotes a portion claimed as CADC areas;
3. Violet shade represent a part of reforestation project of PRI concession; and
4. The yellow color is identical to unclassified Public Forest of said LGU and
the area inclosed in Red is the wilderness area of PICOP Resources, Inc.
(PRI), Timber License Agreement.[26]

Thirdly, PICOP failed to present any evidence that the area covered by the MPSA is a protected
wilderness area designated as an initial component of the NIPAS pursuant to a law, presidential
decree, presidential proclamation or executive order as required by RA 7586.

Sec. 5(a) of RA 7586 provides:

Sec. 5. Establishment and Extent of the System.The establishment


and operationalization of the System shall involve the following:

(a) All areas or islands in the Philippines proclaimed, designated or set aside, pursuant
to a law, presidential decree, presidential proclamation or executive order as national park,
game refuge, bird and wildlife sanctuary, wilderness area, strict nature reserve, watershed,
mangrove reserve, fish sanctuary, natural and historical landmark, protected and managed
landscape/seascape as well as identified virgin forests before the effectivity of this Act are hereby
designated as initial components of the System. The initial components of the System shall be
governed by existing laws, rules and regulations, not inconsistent with this Act.

Although the above-cited area status and clearances, particularly those pertaining to
MPSA Nos. 012 and 013, state that portions thereof are within the wilderness area of PICOP,
there is no showing that this supposed wilderness area has been proclaimed, designated or set
aside as such, pursuant to a law, presidential decree, presidential proclamation or executive
order. It should be emphasized that it is only when this area has been so designated that Sec. 20
of RA 7586, which prohibits mineral locating within protected areas, becomes operational.
From the foregoing, there is clearly no merit to PICOPs contention that the area covered by
Base Metals MPSA is, by law, closed to mining activities.

Finally, we do not subscribe to PICOPs argument that the Presidential Warranty


dated September 25, 1968 is a contract protected by the non-impairment clause of the 1987
Constitution.

An examination of the Presidential Warranty at once reveals that it simply reassures PICOP of
the governments commitment to uphold the terms and conditions of its timber license and
guarantees PICOPs peaceful and adequate possession and enjoyment of the areas which are the
basic sources of raw materials for its wood processing complex. The warranty covers only the
right to cut, collect, and remove timber in its concession area, and does not extend to the
utilization of other resources, such as mineral resources, occurring within the concession.

The Presidential Warranty cannot be considered a contract distinct from PTLA No. 47 and
IFMA No. 35. We agree with the OSGs position that it is merely a collateral undertaking which
cannot amplify PICOPs rights under its timber license. Our definitive ruling
in Oposa v. Factoran[27] that a timber license is not a contract within the purview of the non-
impairment clause is edifying. We declared:

Needless to say, all licenses may thus be revoked or rescinded by executive action. It
is not a contract, property or a property right protected by the due process clause of
the Constitution. In Tan vs. Director of Forestry, this Court held:

x x x A timber license is an instrument by which the State regulates the


utilization and disposition of forest resources to the end that public welfare is
promoted. A timber license is not a contract within the purview of the due
process clause; it is only a license or a privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare as in this
case.

A license is merely a permit or privilege to do what otherwise would be


unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it a
property or a property right, nor does it create a vested right; nor is it taxation
(C.J. 168). Thus, this Court held that the granting of license does not create
irrevocable rights, neither is it property or property rights (People vs. Ong Tin,
54 O.G. 7576). x x x

We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy
Executive Secretary:
x x x Timber licenses, permits and license agreements are the principal
instruments by which the State regulates the utilization and disposition of forest
resources to the end that public welfare is promoted. And it can hardly be
gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable
right to the particular concession area and the forest products therein.
They may be validly amended, modified, replaced or rescinded by the
Chief Executive when national interests so require. Thus, they are not
deemed contracts within the purview of the due process of law clause
[See Sections 3(ee) and 20 of Pres. Decree No. 705, as amended. Also, Tan v.
Director of Forestry, G.R. No. L-24548, October 27, 1983, 125 SCRA 302].

Since timber licenses are not contracts, the non-impairment clause, which
reads:

Sec. 10. No law impairing the obligation of contracts shall be passed.

cannot be invoked.[28] [emphasis supplied]

The Presidential Warranty cannot, in any manner, be construed as a contractual


undertaking assuring PICOP of exclusive possession and enjoyment of its concession
areas. Such an interpretation would result in the complete abdication by the State in favor of
PICOP of the sovereign power to control and supervise the exploration, development and
utilization of the natural resources in the area.

In closing, we should lay emphasis on the fact that the reinstatement of Base Metals
MPSA does not automatically result in its approval. Base Metals still has to comply with the
requirements outlined in DAO 96-40, including the publication/posting/radio announcement of
its mineral agreement application.

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

SO ORDERED.

EN BANC
APEX MINING CO., INC., G.R. Nos. 152613 & 152628
Petitioner,

- versus -

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

BALITE COMMUNAL PORTAL G.R. No. 152619-20


MINING COOPERATIVE,
Petitioner,
- versus -

SOUTHEAST MINDANAO GOLD


MINING CORP., APEX MINING
CO., INC., THE MINES
ADJUDICATION BOARD,
PROVINCIAL MINING
REGULATORY BOARD (PMRB-
DAVAO), MONKAYO
INTEGRATED SMALL SCALE
MINERS ASSOCIATION, INC.,
ROSENDO VILLAFLOR, DAVAO
UNITED MINERS COOPERATIVE,
ANTONIO DACUDAO, PUTING-
BATO GOLD MINERS
COOPERATIVE, ROMEO
ALTAMERA, THELMA
CATAPANG, LUIS GALANG,
RENATO BASMILLO,
FRANCISCO YOBIDO, EDUARDO
GLORIA, EDWIN ASION,
MACARIO HERNANDEZ,
REYNALDO CARUBIO,
ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO
CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and JOEL
BRILLANTES MANAGEMENT
MINING CORPORATION,
Respondents.
x------------------------x
THE MINES ADJUDICATION G.R. No. 152870-71
BOARD AND ITS MEMBERS, THE
HON. VICTOR O. RAMOS Present:
(Chairman), UNDERSECRETARY
VIRGILIO MARCELO (Member) PUNO, C.J.,
and DIRECTOR HORACIO CARPIO,
RAMOS (Member), CORONA,*
Petitioners, CARPIO MORALES,
CHICO-NAZARIO,
VELASCO, JR.,*
NACHURA,**
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,*
BERSAMIN,
DEL CASTILLO,
ABAD, and
VILLARAMA, JR., JJ.

SOUTHEAST MINDANAO GOLD Promulgated:


MINING CORPORATION,
Respondent. November 20, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

RESOLUTION

CHICO-NAZARIO, J.:

This resolves the motion for reconsideration dated 12 July 2006, filed by Southeast Mindanao
Gold Mining Corporation (SEM), of this Courts Decision dated 23 June 2006 (Assailed
Decision). The Assailed Decision held that the assignment of Exploration Permit (EP) 133 in
favor of SEM violated one of the conditions stipulated in the permit, i.e., that the same shall be
for the exclusive use and benefit of Marcopper Mining Corporation (MMC) or its duly
authorized agents. Since SEM did not claim or submit evidence that it was a designated agent of
MMC, the latter cannot be considered as an agent of the former that can use EP 133 and benefit
from it. It also ruled that the transfer of EP 133 violated Presidential Decree No. 463, which
requires that the assignment of a mining right be made with the prior approval of the Secretary
of the Department of Environment and Natural Resources (DENR). Moreover, the Assailed
Decision pointed out that EP 133 expired by non-renewal since it was not renewed before or
after its expiration.

The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent any
question against its validity. In view of this, and considering that under Section 5 of Republic
Act No. 7942, otherwise known as the Mining Act of 1995, mining operations in mineral
reservations may be undertaken directly by the State or through a contractor, the Court deemed
the issue of ownership of priority right over the contested Diwalwal Gold Rush Area as having
been overtaken by the said proclamation. Thus, it was held in the Assailed Decision that it is
now within the prerogative of the Executive Department to undertake directly the mining
operations of the disputed area or to award the operations to private entities including
petitioners Apex and Balite, subject to applicable laws, rules and regulations, and provided that
these private entities are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral
Arguments dated 22 August 2006.

Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying that
the Court elucidate on the Decisions pronouncement that mining operations, are now, therefore
within the full control of the State through the executive branch. Moreover, Apex asks this
Court to order the Mines and Geosciences Board (MGB) to accept its application for an
exploration permit.

In its Manifestation and Motion dated 28 July 2006, Balite echoes the same concern as
that of Apex on the actual takeover by the State of the mining industry in the disputed area to
the exclusion of the private sector. In addition, Balite prays for this Court to direct MGB to
accept its application for an exploration permit.

Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that the
disputed area be awarded to them.

In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the instant
cases. The Court, in a resolution dated 29 April 2008, resolved to set the cases for Oral
Argument on 1 July 2008.

During the Oral Argument, the Court identified the following principal issues to be discussed by
the parties:

1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to SEM
was validly made without violating any of the terms and conditions set forth in
Presidential Decree No. 463 and EP 133 itself.

2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the disputed
area, which constitutes a property right protected by the Constitution.

3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this case is
contrary to and overturns the earlier Decision of this Court in Apex v. Garcia (G.R. No.
92605, 16 July 1991, 199 SCRA 278).

4. Whether the issuance of Proclamation No. 297 declaring the disputed area as mineral
reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite Communal
Portal Mining Cooperative over the Diwalwal Gold Rush Area.

5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was


belatedly raised.

6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely raised,
whether said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.

After hearing the arguments of the parties, the Court required them to submit their
respective memoranda. Memoranda were accordingly filed by SEM, Apex, Balite and Mines
Adjudication Board (MAB).

We shall resolve the second issue before dwelling on the first, third and the rest of the
issues.

MMC or SEM Did Not Have Vested Rights Over the


Diwalwal Gold Rush Area

Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia[1] vested in MMC
mining rights over the disputed area. It claims that the mining rights that MMC acquired under
the said case were the ones assigned to SEM, and not the right to explore under MMCs EP
133. It insists that mining rights, once obtained, continue to subsist regardless of the validity of
the exploration permit; thus, mining rights are independent of the exploration permit and
therefore do not expire with the permit. SEM insists that a mining right is a vested property
right that not even the government can take away. To support this thesis, SEM cites this Courts
ruling in McDaniel v. Apacible and Cuisia[2] and in Gold Creek Mining Corporation v.
Rodriguez,[3] which were decided in 1922 and 1938, respectively.

McDaniel and Gold Creek Mining Corporation are not in point.

In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an unoccupied


public land and registered his mineral claims with the office of the mining recorder pursuant to
the Philippine Bill of 1902, where a mining claim locator, soon after locating the mine, enjoyed
possessory rights with respect to such mining claim with or without a patent therefor. In that
case, the Agriculture Secretary, by virtue of Act No. 2932, approved in 1920, which provides
that all public lands may be leased by the then Secretary of Agriculture and Natural Resources,
was about to grant the application for lease of therein respondent, overlapping the mining
claims of the subject petitioner.Petitioner argued that, being a valid locator, he had vested right
over the public land where his mining claims were located. There, the Court ruled that the
mining claim perfected under the Philippine Bill of 1902, is property in the highest sense of that
term, which may be sold and conveyed, and will pass by descent, and is not therefore subject to
the disposal of the Government. The Court then declared that since petitioner had already
perfected his mining claim under the Philippine Bill of 1902, a subsequent statute, i.e., Act No.
2932, could not operate to deprive him of his already perfected mining claim, without violating
his property right.

Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim
under the Philippine Bill of 1902 no longer formed part of the public domain; hence, such
mining claim does not come within the prohibition against the alienation of natural resources
under Section 1, Article XII of the 1935 Constitution.

Gleaned from the ruling on the foregoing cases is that for this law to apply, it must be
established that the mining claim must have been perfected when the Philippine Bill of 1902
was still in force and effect. This is so because, unlike the subsequent laws that prohibit the
alienation of mining lands, the Philippine Bill of 1902 sanctioned the alienation of mining lands
to private individuals. The Philippine Bill of 1902 contained provisions for, among many other
things, the open and free exploration, occupation and purchase of mineral deposits and the land
where they may be found. It declared all valuable mineral deposits in public lands in the
Philippine Islands, both surveyed and unsurveyed x x x to be free and open to exploration,
occupation, and purchase, and the land in which they are found to occupation and
purchase, by citizens of the United States, or of said Islands x x x.[4] Pursuant to this law, the
holder of the mineral claim is entitled to all the minerals that may lie within his claim, provided
he does three acts:First, he enters the mining land and locates a plot of ground measuring, where
possible, but not exceeding, one thousand feet in length by one thousand feet in breadth, in as
nearly a rectangular form as possible.[5] Second, the mining locator has to record the mineral
claim in the mining recorder within thirty (30) days after the location thereof. [6]Lastly, he must
comply with the annual actual work requirement.[7] Complete mining rights, namely, the rights
to explore, develop and utilize, are acquired by a mining locator by simply following the
foregoing requirements.

With the effectivity of the 1935 Constitution, where the regalian doctrine was adopted, it
was declared that all natural resources of the Philippines, including mineral lands and minerals,
were property belonging to the State. [8] Excluded, however, from the property of public domain
were the mineral lands and minerals that were located and perfected by virtue of the Philippine
Bill of 1902, since they were already considered private properties of the locators.[9]

Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted
the regalian doctrine following the provision of the 1935 Constitution, also proscribed the
alienation of mining lands and granted only lease rights to mining claimants, who were
prohibited from purchasing the mining claim itself.

When Presidential Decree No. 463, which revised Commonwealth Act No. 137, was in
force in 1974, it likewise recognized the regalian doctrine embodied in the 1973 Constitution. It
declared that all mineral deposits and public and private lands belonged to the state while,
nonetheless, recognizing mineral rights that had already been existing under the Philippine Bill
of 1902 as being beyond the purview of the regalian doctrine.[10] The possessory rights of
mining claim holders under the Philippine Bill of 1902 remained intact and effective, and such
rights were recognized as property rights that the holders could convey or pass by descent.[11]

In the instant cases, SEM does not aver or prove that its mining rights had been perfected
and completed when the Philippine Bill of 1902 was still the operative law. Surely, it is
impossible for SEM to successfully assert that it acquired mining rights over the disputed area
in accordance with the same bill, since it was only in 1984 that MMC, SEMs predecessor-in-
interest, filed its declaration of locations and its prospecting permit application in compliance
with Presidential Decree No. 463. It was on 1 July 1985 and 10 March 1986 that a Prospecting
Permit and EP 133, respectively, were issued to MMC. Considering these facts, there is no
possibility that MMC or SEM could have acquired a perfected mining claim under the auspices
of the Philippine Bill of 1902. Whatever mining rights MMC had that it invalidly transferred to
SEM cannot, by any stretch of imagination, be considered mining rights as contemplated under
the Philippine Bill of 1902 and immortalized in McDaniel and Gold Creek Mining.

SEM likens EP 133 with a building permit. SEM likewise equates its supposed rights
attached to the exploration permit with the rights that a private property land owner has to said
landholding. This analogy has no basis in law. As earlier discussed, under the 1935, 1973 and
1987 Constitutions, national wealth, such as mineral resources, are owned by the State and not
by their discoverer. The discoverer or locator can only develop and utilize said minerals for his
own benefit if he has complied with all the requirements set forth by applicable laws and if the
State has conferred on him such right through permits, concessions or agreements. In other
words, without the imprimatur of the State, any mining aspirant does not have any definitive
right over the mineral land because, unlike a private landholding, mineral land is owned by the
State, and the same cannot be alienated to any private person as explicitly stated in Section 2,
Article XIV of the 1987 Constitution:

All lands of public domain, waters, minerals x x x and all other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources shall
not be alienated. (Emphases supplied.)

Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that MMC
assigned to the former the rights and interests it had in EP 133, thus:

1. That for ONE PESO (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. (Emphasis supplied.)

It is evident that what MMC had over the disputed area during the assignment was an
exploration permit. Clearly, the right that SEM acquired was limited to exploration, only
because MMC was a mere holder of an exploration permit. As previously explained, SEM did
not acquire the rights inherent in the permit, as the assignment by MMC to SEM was done in
violation of the condition stipulated in the permit, and the assignment was effected without the
approval of the proper authority in contravention of the provision of the mining law governing
at that time. In addition, the permit expired on 6 July 1994. It is, therefore, quite clear that SEM
has no right over the area.

Even assuming arguendo that SEM obtained the rights attached in EP 133, said rights
cannot be considered as property rights protected under the fundamental law.

An exploration permit does not automatically ripen into a right to extract and utilize the
minerals; much less does it develop into a vested right. The holder of an exploration permit only
has the right to conduct exploration works on the area awarded. Presidential Decree No. 463
defined exploration as the examination and investigation of lands supposed to contain
valuable minerals, by drilling, trenching, shaft sinking, tunneling, test pitting and other
means, for the purpose of probing the presence of mineral deposits and the extent
thereof. Exploration does not include development and exploitation of the minerals
found. Development is defined by the same statute as the steps necessarily taken to reach an
ore body or mineral deposit so that it can be mined, whereas exploitation is defined as the
extraction and utilization of mineral deposits. An exploration permit is nothing more than a
mere right accorded to its holder to be given priority in the governments consideration in the
granting of the right to develop and utilize the minerals over the area. An exploration permit is
merely inchoate, in that the holder still has to comply with the terms and conditions embodied
in the permit. This is manifest in the language of Presidential Decree No. 463, thus:

Sec. 8. x x x The right to exploit therein shall be awarded by the President under such
terms and conditions as recommended by the Director and approved by the Secretary Provided,
That the persons or corporations who undertook prospecting and exploration of said area shall be
given priority.

In La Bugal-Blaan Tribal Association, Inc. v. Ramos,[12] this Court emphasized:

Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a qualified


person the right to conduct exploration for all minerals in specified areas. Such a permit does
not amount to an authorization to extract and carry off the mineral resources that may be
discovered. x x x.

Pursuant to Section 24 of RA 7942, an exploration permit grantee who determines the


commercial viability of a mining area may, within the term of the permit, file with the MGB a
declaration of mining project feasibility accompanied by a work program for development. The
approval of the mining project feasibility and compliance with other requirements of RA
7942 vests in the grantee the exclusive right to an MPSA or any other mineral agreement,
or to an FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is
supported by this Courts ruling in Southeast Mindanao Gold Mining Corporation v. Balite
Portal Mining Cooperative[13]:

Clearly then, the Apex Mining case did not invest petitioner with any definite right to
the Diwalwal mines which it could now set up against respondent BCMC and other mining
groups.

Incidentally, it must likewise be pointed out that under no circumstances may petitioners
rights under EP No. 133 be regarded as total and absolute. As correctly held by the Court of
Appeals in its challenged decision, EP No. 133 merely evidences a privilege granted by the State,
which may be amended, modified or rescinded when the national interest so requires. x x
x. (Underscoring supplied.)

Unfortunately, SEM cannot be given priority to develop and exploit the area covered by EP 133
because, as discussed in the assailed Decision, EP 133 expired by non-renewal on 6 July
1994. Also, as already mentioned, the transfer of the said permit to SEM was without legal
effect because it was done in contravention of Presidential Decree No. 463 which requires prior
approval from the proper authority. Simply told, SEM holds nothing for it to be entitled to
conduct mining activities in the disputed mineral land.

SEM wants to impress on this Court that its alleged mining rights, by virtue of its being a
transferee of EP 133, is similar to a Financial and Technical Assistance Agreement (FTAA) of a
foreign contractor, which merits protection by the due process clause of the Constitution. SEM
cites La Bugal-Blaan Tribal Association, Inc. v. Ramos,[14] as follows:

To say that an FTAA is just like a mere timber license or permit and does not involve
contract or property rights which merit protection by the due process clause of the Constitution,
and may therefore be revoked or cancelled in the blink of an eye, is to adopt a well-nigh
confiscatory stance; at the very least, it is downright dismissive of the property rights of
businesspersons and corporate entities that have investments in the mining industry, whose
investments, operations and expenditures do contribute to the general welfare of the people, the
coffers of government, and the strength of the economy. x x x.

Again, this argument is not meritorious. SEM did not acquire the rights attached to EP
133, since their transfer was without legal effect. Granting for the sake of argument that SEM
was a valid transferee of the permit, its right is not that of a mining contractor. An exploration
permit grantee is vested with the right to conduct exploration only, while an FTAA or
MPSA contractor is authorized to extract and carry off the mineral resources that may be
discovered in the area.[15] An exploration permit holder still has to comply with the mining
project feasibility and other requirements under the mining law. It has to obtain approval of
such accomplished requirements from the appropriate government agencies. Upon obtaining
this approval, the exploration permit holder has to file an application for an FTAA or an MPSA
and have it approved also. Until the MPSA application of SEM is approved, it cannot lawfully
claim that it possesses the rights of an MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration permit
grantee (or prospective contractor) cannot yet be deemed to have entered into any contract or
agreement with the State x x x.[16]

But again, SEM is not qualified to apply for an FTAA or any mineral agreement,
considering that it is not a holder of a valid exploration permit, since EP 133 expired by non-
renewal and the transfer to it of the same permit has no legal value.

More importantly, assuming arguendo that SEM has a valid exploration permit, it cannot
assert any mining right over the disputed area, since the State has taken over the mining
operations therein, pursuant to Proclamation No. 297 issued by the President on 25 November
2002. The Court has consistently ruled that the nature of a natural resource exploration permit is
analogous to that of a license. In Republic v. Rosemoor Mining and Development Corporation,
this Court articulated:

Like timber permits, mining exploration permits do not vest in the grantee any permanent
or irrevocable right within the purview of the non-impairment of contract and due process
clauses of the Constitution, since the State, under its all-encompassing police power, may alter,
modify or amend the same, in accordance with the demands of the general welfare. [17] (Emphasis
supplied.)

As a mere license or privilege, an exploration permit can be validly amended by the


President of the Republic when national interests suitably necessitate. The Court instructed
thus:

Timber licenses, permits and license agreements are the principal instruments by which the State
regulates the utilization and disposition of forest resources to the end that the public welfare is
promoted. x x x They may be validly amended, modified, replaced or rescinded by the Chief
Executive when national interests so require.[18]

Recognizing the importance of the countrys natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of Republic Act
No. 7942 empowers the President, when the national interest so requires, to establish mineral
reservations where mining operations shall be undertaken directly by the State or through a
contractor, viz:

SEC 5. Mineral Reservations. When the national interest so requires, such as when there is a
need to preserve strategic raw materials for industries critical to national development, or certain
minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining
operations in existing mineral reservations and such other reservations as may thereafter
be established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by
unregulated small to medium-scale mining operations causing ecological, health and peace and
order problems, the President, on 25 November 2002, issued Proclamation No. 297, which
declared the area as a mineral reservation and as an environmentally critical area. This
executive fiat was aimed at preventing the further dissipation of the natural environment and
rationalizing the mining operations in the area in order to attain an orderly balance between
socio-economic growth and environmental protection. The area being a mineral reservation, the
Executive Department has full control over it pursuant to Section 5 of Republic Act No. 7942. It
can either directly undertake the exploration, development and utilization of the minerals found
therein, or it can enter into agreements with qualified entities. Since the Executive Department
now has control over the exploration, development and utilization of the resources in the
disputed area, SEMs exploration permit, assuming that it is still valid, has been effectively
withdrawn. The exercise of such power through Proclamation No. 297 is in accord with jura
regalia, where the State exercises its sovereign power as owner of lands of the public domain
and the mineral deposits found within. Thus, Article XII, Section 2 of the 1987 Constitution
emphasizes:

SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and other mineral oils,
all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-production, joint venture, or
product-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. (Emphasis supplied.)

Furthermore, said proclamation cannot be denounced as offensive to the fundamental law


because the State is sanctioned to do so in the exercise of its police power. [19] The issues on
health and peace and order, as well the decadence of the forest resources brought about by
unregulated mining in the area, are matters of national interest. The declaration of the Chief
Executive making the area a mineral reservation, therefore, is sanctioned by Section 5 of
Republic Act No. 7942.

The Assignment of EP No. 133 by MMC in Favor of SEM


Violated Section 97 of Presidential Decree No. 463 and the
Terms and Conditions Set Forth in the Permit

SEM claims that the approval requirement under Section 97 of Presidential Decree No. 463 is
not applicable to this case, because MMC neither applied for nor was granted a mining lease
contract. The said provision states:

SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest therein shall
not be transferred, assigned, or subleased without the prior approval of the
Secretary: Provided, that such transfer, assignment or sublease may be made only to a qualified
person possessing the resources and capability to continue the mining operations of the lessee
and that the assignor has complied with all the obligations of the lease: Provided, further, That
such transfer or assignment shall be duly registered with the office of the mining recorder
concerned. (Emphasis supplied.)

Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when
Presidential Decree No. 463 was still the governing law. Presidential Decree No. 463 pertains to
the old system of exploration, development and utilization of natural resources through license,
concession or lease.[20]

Pursuant to this law, a mining lease contract confers on the lessee or his successors the
right to extract, to remove, process and utilize the mineral deposits found on or underneath the
surface of his mining claims covered by the lease. The lessee may also enter into a service
contract for the exploration, development and exploitation of the minerals from the lands
covered by his lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors, and assigns the
right to extract all mineral deposits found on or underneath the surface of his mining claims
covered by the lease, continued vertically downward; to remove, process, and otherwise utilize
the mineral deposits for his own benefit; and to use the lands covered by the lease for the purpose
or purposes specified therein x x x That a lessee may on his own or through the Government,
enter into a service contract for the exploration, development and exploitation of his claims
and the processing and marketing of the product thereof, subject to the rules and regulations that
shall be promulgated by the Director, with the approval of the Secretary x x x. (Emphases
supplied.)

In other words, the lessees interests are not only limited to the extraction or utilization of
the minerals in the contract area, but also to include the right to explore and develop the
same. This right to explore the mining claim or the contract area is derived from the exploration
permit duly issued by the proper authority. An exploration permit is, thus, covered by the
term any other interest therein. Section 97 is entitled, Assignment of Mining Rights. This alone
gives a hint that before mining rights -- namely, the rights to explore, develop and utilize -- are
transferred or assigned, prior approval must be obtained from the DENR Secretary. An
exploration permit, thus, cannot be assigned without the imprimatur of the Secretary of the
DENR.

It is instructive to note that under Section 13 of Presidential Decree No. 463, the
prospecting and exploration of minerals in government reservations, such as forest reservations,
are prohibited, except with the permission of the government agency concerned. It is the
government agency concerned that has the prerogative to conduct prospecting, exploration and
exploitation of such reserved lands.[21] It is only in instances wherein said government agency, in
this case the Bureau of Mines, cannot undertake said mining operations that qualified persons
may be allowed by the government to undertake such operations. PNOC-EDC v. Veneracion, Jr.
[22]
outlines the five requirements for acquiring mining rights in reserved lands under
Presidential Decree No. 463: (1) a prospecting permit from the agency that has jurisdiction over
the land; (2) an exploration permit from the Bureau of Mines and Geo-Sciences (BMGS); (3) if
the exploration reveals the presence of commercial deposit, application to BMGS by the permit
holder for the exclusion of the area from the reservation; (4) a grant by the President of the
application to exclude the area from the reservation; and (5) a mining agreement (lease, license
or concession) approved by the DENR Secretary.

Here, MMC met the first and second requirements and obtained an exploration permit
over the disputed forest reserved land. Although MMC still has to prove to the government that
it is qualified to develop and utilize the subject mineral land, as it has yet to go through the
remaining process before it can secure a lease agreement, nonetheless, it is bound to follow
Section 97 of Presidential Decree No. 463. The logic is not hard to discern. If a lease holder,
who has already demonstrated to the government his capacity and qualifications to further
develop and utilize the minerals within the contract area, is prohibited from transferring his
mining rights (rights to explore, develop and utilize), with more reason will this proscription
apply with extra force to a mere exploration permit holder who is yet to exhibit his
qualifications in conducting mining operations. The rationale for the approval requirement
under Section 97 of Presidential Decree No. 463 is not hard to see. Exploration permits are
strictly granted to entities or individuals possessing the resources and capability to undertake
mining operations. Mining industry is a major support of the national economy and the
continuous and intensified exploration, development and wise utilization of mining resources is
vital for national development. For this reason, Presidential Decree No. 463 makes it imperative
that in awarding mining operations, only persons possessing the financial resources and
technical skill for modern exploratory and development techniques are encouraged to undertake
the exploration, development and utilization of the countrys natural resources. The preamble of
Presidential Decree No. 463 provides thus:

WHEREAS, effective and continuous mining operations require considerable outlays of


capital and resources, and make it imperative that persons possessing the financial resources and
technical skills for modern exploratory and development techniques be encouraged to undertake
the exploration, development and exploitation of our mineral resources;

The Court has said that a preamble is the key to understanding the statute, written to open the
minds of the makers to the mischiefs that are to be remedied, and the purposes that are to be
accomplished, by the provisions of the statute.[23] As such, when the statute itself is ambiguous
and difficult to interpret, the preamble may be resorted to as a key to understanding the statute.

Indubitably, without the scrutiny by the government agency as to the qualifications of the
would-be transferee of an exploration permit, the same may fall into the hands of non-qualified
entities, which would be counter-productive to the development of the mining industry. It
cannot be overemphasized that the exploration, development and utilization of the countrys
natural resources are matters vital to the public interest and the general welfare; hence, their
regulation must be of utmost concern to the government, since these natural resources are not
only critical to the nations security, but they also ensure the countrys survival as a viable and
sovereign republic.[24]
The approval requirement of the Secretary of the DENR for the assignment of
exploration permits is bolstered by Section 25 of Republic Act No. 7942 (otherwise known as
the Philippine Mining Act of 1995), which provides that:

Sec. 25. Transfer or Assignment. An exploration permit may be transferred or assigned to


a qualified person subject to the approval of the Secretary upon the recommendation of the
Director.

SEM further posits that Section 97 of Presidential Decree No. 463, which requires the
prior approval of the DENR when there is a transfer of mining rights, cannot be applied to the
assignment of EP 133 executed by MMC in favor of SEM because during the execution of the
Deed of Assignment on 16 February 1994, Executive Order No. 279[25] became the governing
statute, inasmuch as the latter abrogated the old mining system -- i.e., license, concession or
lease -- which was espoused by the former.

This contention is not well taken. While Presidential Decree No. 463 has already been repealed
by Executive Order No. 279, the administrative aspect of the former law nonetheless remains
applicable. Hence, the transfer or assignment of exploration permits still needs the prior
approval of the Secretary of the DENR. As ruled in Miners Association of the Philippines, Inc.
v. Factoran, Jr.[26]:

Presidential Decree No. 463, as amended, pertains to the old system of exploration, development
and utilization of natural resources through license, concession or lease which, however, has
been disallowed by Article XII, Section 2 of the 1987 Constitution. By virtue of the said
constitutional mandate and its implementing law, Executive Order No. 279, which superseded
Executive Order No. 211, the provisions dealing on license, concession, or lease of mineral
resources under Presidential Decree No. 463, as amended, and other existing mining laws are
deemed repealed and, therefore, ceased to operate as the governing law. In other words, in all
other areas of administration and management of mineral lands, the provisions of
Presidential Decree No. 463, as amended, and other existing mining laws, still
govern. (Emphasis supplied.)

Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential Decree
No. 463, it likewise transgressed one of the conditions stipulated in the grant of the said
permit. The following terms and conditions attached to EP 133 are as follows:[27]

1. That the permittee shall abide by the work program submitted with the application or
statements made later in support thereof, and which shall be considered as conditions and
essential parts of this permit;

2. That permittee shall maintain a complete record of all activities and accounting of all
expenditures incurred therein subject to periodic inspection and verification at reasonable
intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end of
each calendar quarter a report under oath of a full and complete statement of the work done in
the area covered by the permit;

4. That the term of this permit shall be for two (2) years to be effective from this date,
renewable for the same period at the discretion of the Director of Mines and upon request of the
applicant;

5. That the Director of Mines may at any time cancel this permit for violation of its
provision or in case of trouble or breach of peace arising in the area subject hereof by reason of
conflicting interests without any responsibility on the part of the government as to expenditures
for exploration that might have been incurred, or as to other damages that might have been
suffered by the permittee;

6. That this permit shall be for the exclusive use and benefit of the permittee or his
duly authorized agents and shall be used for mineral exploration purposes only and for no other
purpose.

It must be noted that under Section 90[28] of Presidential Decree No. 463, which was the
applicable statute during the issuance of EP 133, the DENR Secretary, through the Director of
the Bureau of Mines and Geosciences, was charged with carrying out the said law. Also, under
Commonwealth Act No. 136, also known as An Act Creating the Bureau of Mines, which was
approved on 7 November 1936, the Director of Mines had the direct charge of the
administration of the mineral lands and minerals; and of the survey, classification, lease or any
other form of concession or disposition thereof under the Mining Act. [29] This power of
administration included the power to prescribe terms and conditions in granting exploration
permits to qualified entities.

Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within
his power in laying down the terms and conditions attendant thereto. MMC and SEM did not
dispute the reasonableness of said conditions.

Quite conspicuous is the fact that neither MMC nor SEM denied that they were unaware
of the terms and conditions attached to EP 133. MMC and SEM did not present any evidence
that they objected to these conditions. Indubitably, MMC wholeheartedly accepted these terms
and conditions, which formed part of the grant of the permit. MMC agreed to abide by these
conditions. It must be accentuated that a party to a contract cannot deny its validity, without
outrage to ones sense of justice and fairness, after enjoying its benefits. [30] Where parties have
entered into a well-defined contractual relationship, it is imperative that they should honor and
adhere to their rights and obligations as stated in their contracts, because obligations arising
from these have the force of law between the contracting parties and should be complied with in
good faith.[31] Condition Number 6 categorically states that the permit shall be for the exclusive
use and benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any
evidence showing that the former is the duly authorized agent of the latter. This Court cannot
condone such utter disregard on the part of MMC to honor its obligations under the permit.
Undoubtedly, having violated this condition, the assignment of EP 133 to SEM is void and has
no legal effect.

To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6 July
1993, EP 133 was extended for twelve more months or until 6 July 1994. MMC or SEM,
however, never renewed EP 133 either prior to or after its expiration. Thus, EP 133 expired by
non-renewal on 6 July 1994. With the expiration of EP 133 on 6 July 1994, MMC lost any right
to the Diwalwal Gold Rush Area.

The Assailed Decision Resolved Facts and Issues That


Transpired after the Promulgation of Apex Mining Co.,
Inc. v. Garcia

SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of the
Court en banc entitled, Apex Mining Co., Inc. v. Garcia.[32]

The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining Co.,
Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the issue
of which, between Apex and MMC, availed itself of the proper procedure in acquiring the
right to prospect and to explore in the Agusan-Davao-Surigao Forest Reserve. Apex
registered its Declarations of Location (DOL) with the then BMGS, while MMC was granted a
permit to prospect by the Bureau of Forest Development (BFD) and was subsequently granted
an exploration permit by the BMGS. Taking into consideration Presidential Decree No. 463,
which provides that mining rights within forest reservation can be acquired by initially applying
for a permit to prospect with the BFD and subsequently for a permit to explore with the BMGS,
the Court therein ruled that MMC availed itself of the proper procedure to validly operate
within the forest reserve or reservation.

While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which between
Apex and MMC was legally entitled to explore in the disputed area, such rights, though, were
extinguished by subsequent events that transpired after the decision was promulgated. These
subsequent events, which were not attendant in Apex Mining Co., Inc. v. Garcia[33] dated 16 July
1991, are the following:

(1) the expiration of EP 133 by non-renewal on 6 July 1994;

(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was done in violation
to the condition of EP 133 proscribing its transfer;

(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating PD 463 which
mandates that the assignment of mining rights must be with the prior approval of the
Secretary of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,[34] the Court, through Associate Justice Consuelo Ynares-Santiago (now retired),
declared that Apex Mining Co., Inc. v. Garcia did not deal with the issues of the expiration of
EP 133 and the validity of the transfer of EP 133 to SEM, viz:

Neither can the Apex Mining case foreclose any question pertaining to the
continuing validity of EP No. 133 on grounds which arose after the judgment in said
case was promulgated. While it is true that the Apex Mining case settled the issue of
who between Apex and Marcopper validly acquired mining rights over the disputed
area by availing of the proper procedural requisites mandated by law, it certainly
did not deal with the question raised by the oppositors in the Consolidated Mines
cases, i.e., whether EP No. 133 had already expired and remained valid subsequent
to its transfer by Marcopper to petitioner. (Emphasis supplied.)

What is more revealing is that in the Resolution dated 26 November 1992, resolving the
motion for reconsideration of Apex Mining Co., Inc. v. Garcia, the Court clarified that the ruling
on the said decision was binding only between Apex and MMC and with respect the particular
issue raised therein. Facts and issues not attendant to the said decision, as in these cases, are not
settled by the same. A portion of the disposition of the Apex Mining Co., Inc. v.
Garcia Resolution dated 26 November 1992 decrees:

x x x The decision rendered in this case is conclusive only between the parties with
respect to the particular issue herein raised and under the set of circumstances herein
prevailing. In no case should the decision be considered as a precedent to resolve or settle
claims of persons/entities not parties hereto. Neither is it intended to unsettle rights of
persons/entities which have been acquired or which may have accrued upon reliance on laws
passed by the appropriate agencies. (Emphasis supplied.)

The Issue of the Constitutionality of Proclamation Is Raised


Belatedly

In its last-ditch effort to salvage its case, SEM contends that Proclamation No. 297,
issued by President Gloria Macapagal-Arroyo and declaring the Diwalwal Gold Rush Area as a
mineral reservation, is invalid on the ground that it lacks the concurrence of Congress as
mandated by Section 4, Article XII of the Constitution; Section 1 of Republic Act No. 3092;
Section 14 of Executive Order No. 292, otherwise known as the Administrative Code of 1987;
Section 5(a) of Republic Act No. 7586, and Section 4(a) of Republic Act No. 6657.

It is well-settled that when questions of constitutionality are raised, the court can exercise
its power of judicial review only if the following requisites are present: (1) an actual and
appropriate case exists; (2) there is a personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is pleaded at the earliest opportunity;
and (4) the constitutional question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily clear
that the third requisite is absent. The general rule is that the question of constitutionality must
be raised at the earliest opportunity, so that if it is not raised in the pleadings, ordinarily it may
not be raised at the trial; and if not raised in the trial court, it will not be considered on appeal.
[35]

In the instant case, it must be pointed out that in the Reply to Respondent SEMs
Consolidated Comment filed on 20 May 2003, MAB mentioned Proclamation No. 297, which
was issued on 25 November 2002. This proclamation, according to the MAB, has rendered
SEMs claim over the contested area moot, as the President has already declared the same as a
mineral reservation and as an environmentally critical area. SEM did not put to issue the
validity of said proclamation in any of its pleadings despite numerous opportunities to question
the same. It was only after the assailed Decision was promulgated -- i.e., in SEMs Motion for
Reconsideration of the questioned Decision filed on 13 July 2006 and its Motion for Referral of
the Case to the Court En Banc and for Oral Arguments filed on 22 August 2006 -- that it
assailed the validity of said proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for the
first time in its Motion for Reconsideration is, indeed, too late.[36]

In fact, this Court, when it rendered the Decision it merely recognized that the questioned
proclamation came from a co-equal branch of government, which entitled it to a strong
presumption of constitutionality.[37] The presumption of its constitutionality stands inasmuch as
the parties in the instant cases did not question its validity, much less present any evidence to
prove that the same is unconstitutional. This is in line with the precept that administrative
issuances have the force and effect of law and that they benefit from the same presumption of
validity and constitutionality enjoyed by statutes.[38]

Proclamation No. 297 Is in Harmony with Article XII,


Section 4, of the Constitution

At any rate, even if this Court were to consider the arguments belatedly raised by SEM,
said arguments are not meritorious.

SEM asserts that Article XII, Section 4 of the Constitution, bars the President from
excluding forest reserves/reservations and proclaiming the same as mineral reservations, since
the power to de-classify them resides in Congress.

Section 4, Article XII of the Constitution reads:

The Congress shall as soon as possible, determine by law the specific limits of forest
lands and national parks, marking clearly their boundaries on the ground. Thereafter, such forest
lands and national parks shall be conserved and may not be increased nor diminished, except by
law. The Congress shall provide, for such periods as it may determine, measures to prohibit
logging in endangered forests and in watershed areas.
The above-quoted provision says that the area covered by forest lands and national parks
may not be expanded or reduced, unless pursuant to a law enacted by Congress. Clear in the
language of the constitutional provision is its prospective tenor, since it speaks in this
manner: Congress shall as soon as possible. It is only after the specific limits of the forest lands
shall have been determined by the legislature will this constitutional restriction apply. SEM
does not allege nor present any evidence that Congress had already enacted a statute
determining with specific limits forest lands and national parks. Considering the absence of
such law, Proclamation No. 297 could not have violated Section 4, Article XII of the 1987
Constitution. In PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation, [39] the
Court had the occasion to similarly rule in this fashion:

x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that Congress shall
determine the specific limits of forest lands and national parks, marking clearly their boundaries
on the ground. Once this is done, the area thus covered by said forest lands and national parks
may not be expanded or reduced except also by congressional legislation. Since Congress has
yet to enact a law determining the specific limits of the forest lands covered by
Proclamation No. 369 and marking clearly its boundaries on the ground, there can be no
occasion that could give rise to a violation of the constitutional provision.

Section 4, Article XII of the Constitution, addresses the concern of the drafters of the
1987 Constitution about forests and the preservation of national parks. This was brought about
by the drafters awareness and fear of the continuing destruction of this countrys forests. [40] In
view of this concern, Congress is tasked to fix by law the specific limits of forest lands and
national parks, after which the trees in these areas are to be taken care of. [41] Hence, these forest
lands and national parks that Congress is to delimit through a law could be changed only by
Congress.

In addition, there is nothing in the constitutional provision that prohibits the President
from declaring a forest land as an environmentally critical area and from regulating the mining
operations therein by declaring it as a mineral reservation in order to prevent the further
degradation of the forest environment and to resolve the health and peace and order problems
that beset the area.

A closer examination of Section 4, Article XII of the Constitution and Proclamation No.
297 reveals that there is nothing contradictory between the two. Proclamation No. 297, a
measure to attain and maintain a rational and orderly balance between socio-economic growth
and environmental protection, jibes with the constitutional policy of preserving and protecting
the forest lands from being further devastated by denudation. In other words, the proclamation
in question is in line with Section 4, Article XII of the Constitution, as the former fosters the
preservation of the forest environment of the Diwalwal area and is aimed at preventing the
further degradation of the same. These objectives are the very same reasons why the subject
constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our laws
towards the end that the countrys precious natural resources may be rationally explored,
developed, utilized and conserved.[42] It has been held that forest reserves or reservations can at
the same time be open to mining operations, provided a prior written clearance by the
government agency having jurisdiction over such reservation is obtained. In other words
mineral lands can exist within forest reservations. These two terms are not anti-thetical. This is
made manifest if we read Section 47 of Presidential Decree No. 705 or the Revised Forestry
Code of the Philippines, which provides:

Mining operations in forest lands shall be regulated and conducted with due regard to
protection, development and utilization of other surface resources. Location, prospecting,
exploration, utilization or exploitation of mineral resources in forest reservations shall be
governed by mining laws, rules and regulations. (Emphasis supplied.)

Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that mining
operations in reserved lands other than mineral reservations, such as forest
reserves/reservations, are allowed, viz:

Mining operations in reserved lands other than mineral reservations may be undertaken by
the Department, subject to limitations as herein provided. In the event that the Department
cannot undertake such activities, they may be undertaken by a qualified person in accordance
with the rules and regulations promulgated by the Secretary. (Emphasis supplied.)

Since forest reservations can be made mineral lands where mining operations are conducted,
then there is no argument that the disputed land, which lies within a forest reservation, can be
declared as a mineral reservation as well.

Republic Act No. 7942 Otherwise Known as the Philippine


Mining Act of 1995, is the Applicable Law

Determined to rivet its crumbling cause, SEM then argues that Proclamation No. 297 is
invalid, as it transgressed the statutes governing the exclusion of areas already declared as forest
reserves, such as Section 1 of Republic Act No. 3092,[43] Section 14 of the Administrative Code
of 1987, Section 5(a) of Republic Act No. 7586,[44] and Section 4(a) of Republic Act No. 6657.
[45]

Citing Section 1 of Republic Act No. 3092, which provides as follows:

Upon the recommendation of the Director of Forestry, with the approval of the
Department Head, the President of the Philippines shall set apart forest reserves which shall
include denuded forest lands from the public lands and he shall by proclamation declare the
establishment of such forest reserves and the boundaries thereof, and thereafter such forest
reserves shall not be entered, or otherwise disposed of, but shall remain indefinitely as such for
forest uses.
The President of the Philippines may, in like manner upon the recommendation of the
Director of Forestry, with the approval of the Department head, by proclamation, modify the
boundaries of any such forest reserve to conform with subsequent precise survey but not to
exclude any portion thereof except with the concurrence of Congress. (Underscoring
supplied.)

SEM submits that the foregoing provision is the governing statute on the exclusion of areas
already declared as forest reserves. Thus, areas already set aside by law as forest reserves are no
longer within the proclamation powers of the President to modify or set aside for any other
purposes such as mineral reservation.

To bolster its contention that the President cannot disestablish forest reserves into mineral
reservations, SEM makes reference to Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which partly recites:

The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation. (Emphases supplied.)

SEM further contends that Section 7 of Republic Act No. 7586, [46] which declares that the
disestablishment of a protected area shall be done by Congress, and Section 4(a) of Republic
Act No. 6657,[47] which in turn requires a law passed by Congress before any forest reserve can
be reclassified, militate against the validity of Proclamation No. 297.

Proclamation No. 297, declaring a certain portion of land located in Monkayo,


Compostela Valley, with an area of 8,100 hectares, more or less, as a mineral reservation, was
issued by the President pursuant to Section 5 of Republic Act No. 7942, also known as the
Philippine Mining Act of 1995.

Proclamation No. 297 did not modify the boundaries of the Agusan-Davao-Surigao
Forest Reserve since, as earlier discussed, mineral reservations can exist within forest reserves
because of the multiple land use policy. The metes and bounds of a forest reservation remain
intact even if, within the said area, a mineral land is located and thereafter declared as a mineral
reservation.

More to the point, a perusal of Republic Act No. 3092, An Act to Amend Certain Sections
of the Revised Administrative Code of 1917, which was approved on 17 August 1961, and the
Administrative Code of 1987, shows that only those public lands declared by the President as
reserved pursuant to these two statutes are to remain subject to the specific purpose. The tenor
of the cited provisions, namely: the President of the Philippines shall set apart forest
reserves and the reserved land shall thereafter remain, speaks of future public reservations to be
declared, pursuant to these two statutes. These provisions do not apply to forest reservations
earlier declared as such, as in this case, which was proclaimed way back on 27 February 1931,
by Governor General Dwight F. Davis under Proclamation No. 369.

Over and above that, Section 5 of Republic Act No. 7942 authorizes the President to
establish mineral reservations, to wit:

Sec. 5. Mineral Reservations. - When the national interest so requires, such as when there
is a need to preserve strategic raw materials for industries critical to national development, or
certain minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining
operations in existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x x. (Emphasis
supplied.)

It is a rudimentary principle in legal hermeneutics that where there are two acts or
provisions, one of which is special and particular and certainly involves the matter in question,
the other general, which, if standing alone, would include the matter and thus conflict with the
special act or provision, the special act must as intended be taken as constituting an exception to
the general act or provision, especially when such general and special acts or provisions are
contemporaneous, as the Legislature is not to be presumed to have intended a conflict.

Hence, it has become an established rule of statutory construction that where one statute
deals with a subject in general terms, and another deals with a part of the same subject in a more
detailed way, the two should be harmonized if possible; but if there is any conflict, the latter
shall prevail regardless of whether it was passed prior to the general statute. Or where two
statutes are of contrary tenor or of different dates but are of equal theoretical application to a
particular case, the one specially designed therefor should prevail over the other.

It must be observed that Republic Act No. 3092, An Act to Amend Certain Sections of the
Revised Administrative Code of 1917, and the Administrative Code of 1987, are general
laws. Section 1 of Republic Act No. 3092 and Section 14 of the Administrative Code of 1987
require the concurrence of Congress before any portion of a forest reserve can be validly
excluded therefrom. These provisions are broad since they deal with all kinds of exclusion or
reclassification relative to forest reserves, i.e., forest reserve areas can be transformed into all
kinds of public purposes, not only the establishment of a mineral reservation. Section 5 of
Republic Act No. 7942 is a special provision, as it specifically treats of the establishment of
mineral reservations only. Said provision grants the President the power to proclaim a mineral
land as a mineral reservation, regardless of whether such land is also an existing forest
reservation.

Sec. 5(a) of Republic Act No. 7586 provides:

Sec. 5. Establishment and Extent of the System. The establishment and operationalization of the
System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated or set aside, pursuant to
a law, presidential decree, presidential proclamation or executive order as national park, game
refuge, bird and wildlife sanctuary, wilderness area, strict nature reserve, watershed, mangrove
reserve, fish sanctuary, natural and historical landmark, protected and managed
landscape/seascape as well as identified virgin forests before the effectivity of this Act are hereby
designated as initial components of the System. The initial components of the System shall be
governed by existing laws, rules and regulations, not inconsistent with this Act.

Glaring in the foregoing enumeration of areas comprising the initial component of the NIPAS
System under Republic Act No. 7586 is the absence of forest reserves. Only protected areas
enumerated under said provision cannot be modified. Since the subject matter of Proclamation
No. 297 is a forest reservation proclaimed as a mineral reserve, Republic Act No. 7586 cannot
possibly be made applicable. Neither can Proclamation No. 297 possibly violate said law.

Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the instant
case.

Section 4(a) of Republic Act No. 6657 reads:

All alienable and disposable lands of the public domain devoted to or suitable for
agriculture. No reclassification of forest or mineral lands to agricultural lands shall be
undertaken after the approval of this Act until Congress, taking into account ecological,
developmental and equity considerations, shall have determined by law, the specific limits
of the public domain.(Underscoring supplied.)

Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or mineral
lands into agricultural lands until Congress shall have determined by law the specific limits of
the public domain. A cursory reading of this provision will readily show that the same is not
relevant to the instant controversy, as there has been no reclassification of a forest or mineral
land into an agricultural land.

Furthermore, the settled rule of statutory construction is that if two or more laws of
different dates and of contrary tenors are of equal theoretical application to a particular case, the
statute of later date must prevail being a later expression of legislative will.[48]

In the case at bar, there is no question that Republic Act No. 7942 was signed into law
later than Republic Act No. 3092, the Administrative Code of 1987, [49] Republic Act No. 7586
and Republic Act No. 6657. Applying the cited principle, the provisions of Republic Act No.
3092, the Administrative Code of 1987, Republic Act No. 7586 and Republic Act No. 6657
cited by SEM must yield to Section 5 of Republic Act No. 7942.

Camilo Banad, et al., Cannot Seek Relief from This Court


Camilo Banad and his group admit that they are members of the Balite Cooperative. They,
however, claim that they are distinct from Balite and move that this Court recognize them as
prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records reveal that
although they were parties to the instant cases before the Court of Appeals, they did not file a
petition for review before this Court to contest the decision of the appellate court. The only
petitioners in the instant cases are the MAB, SEM, Balite and Apex.Consequently, having no
personality in the instant cases, they cannot seek any relief from this Court.

Apexs Motion for Clarification and Balites Manifestation


and Motion

In its Motion for Clarification, Apex desires that the Court elucidate the assailed
Decisions pronouncement that mining operations, are now, therefore within the full control of
the State through the executive branch and place the said pronouncement in the proper
perspective as the declaration in La Bugal-BLaan, which states that

The concept of control adopted in Section 2 of Article XII must be taken to mean less
than dictatorial, all-encompassing control; but nevertheless sufficient to give the State the power
to direct, restrain, regulate and govern the affairs of the extractive enterprise.[50]

Apex states that the subject portion of the assailed Decision could send a chilling effect to
potential investors in the mining industry, who may be of the impression that the State has taken
over the mining industry, not as regulator but as an operator. It is of the opinion that the State
cannot directly undertake mining operations.
Moreover, Apex is apprehensive of the following portion in the questioned Decision The
State can also opt to award mining operations in the mineral reservation to private entities
including petitioner Apex and Balite, if it wishes. It avers that the phrase if it wishes may
whimsically be interpreted to mean a blanket authority of the administrative authority to reject
the formers application for an exploration permit even though it complies with the prescribed
policies, rules and regulations.
Apex likewise asks this Court to order the MGB to accept its application for an
exploration permit.

Balite echoes the same concern as that of Apex on the actual take-over by the State of the
mining industry in the disputed area to the exclusion of the private sector. In addition, Balite
prays that this Court direct MGB to accept Balites application for an exploration permit.

Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2, Article XII of
the Constitution and Section 5 of Republic Act No. 7942 sanctions the State, through the
executive department, to undertake mining operations directly, as an operator and not as a mere
regulator of mineral undertakings. This is made clearer by the fourth paragraph of Section 2,
Article XII of the 1987 Constitution, which provides in part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter into co-
production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. x x x. (Emphasis supplied.)

Also, Section 5 of Republic Act No. 7942 states that the mining operations in mineral
reservations shall be undertaken by the Department of Environment and Natural Resources or a
contractor, to wit:

SEC. 5. Mineral Reservations. When the national interest so requires, such as when there
is a need to preserve strategic raw materials for industries critical to national development, or
certain minerals for scientific, cultural or ecological value, the President may establish mineral
reservations upon the recommendation of the Director through the Secretary. Mining operations
in existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)

Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the executive
department to undertake mining operations. Besides, La Bugal-BLaan, cited by Apex, did not
refer to the fourth sentence of Section 2, Article XII of the Constitution, but to the third
sentence of the said provision, which states:

SEC. 2. x x x The exploration, development, and utilization of natural resources shall be


under the full control and supervision of the State. x x x.

Pursuant to Section 5 of Republic Act No. 7942, the executive department has the option
to undertake directly the mining operations in the Diwalwal Gold Rush Area or to award mining
operations therein to private entities. The phrase if it wishes must be understood within the
context of this provision. Hence, the Court cannot dictate this co-equal branch to choose which
of the two options to select. It is the sole prerogative of the executive department to undertake
directly or to award the mining operations of the contested area.

Even assuming that the proper authority may decide to award the mining operations of
the disputed area, this Court cannot arrogate unto itself the task of determining who, among the
applicants, is qualified. It is the duty of the appropriate administrative body to determine the
qualifications of the applicants. It is only when this administrative body whimsically denies the
applications of qualified applicants that the Court may interfere. But until then, the Court has no
power to direct said administrative body to accept the application of any qualified applicant.

In view of this, the Court cannot grant the prayer of Apex and Balite asking the Court to
direct the MGB to accept their applications pending before the MGB.

SEMs Manifestation and Motion dated 25 January 2007


SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC, complied
with the mandatory exploration work program, required under EP 133, by attaching therewith
quarterly reports on exploration work from 20 June 1986 to March 1994.

It must be observed that this is the very first time at this very late stage that SEM has
presented the quarterly exploration reports. From the early phase of this controversy, SEM did
not disprove the arguments of the other parties that Marcopper violated the terms under EP 133,
among other violations, by not complying with the mandatory exploration work
program. Neither did it present evidence for the appreciation of the lower tribunals. Hence, the
non-compliance with the mandatory exploration work program was not made an issue in any
stage of the proceedings. The rule is that an issue that was not raised in the lower court or
tribunal cannot be raised for the first time on appeal, as this would violate the basic rules of fair
play, justice and due process.[51] Thus, this Court cannot take cognizance of the issue of whether
or not MMC complied with the mandatory work program.

In sum, this Court finds:

1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex Mining
Co., Inc. v. Garcia. The former was decided on facts and issues that were not
attendant in the latter, such as the expiration of EP 133, the violation of the
condition embodied in EP 133 prohibiting its assignment, and the unauthorized and
invalid assignment of EP 133 by MMC to SEM, since this assignment was effected
without the approval of the Secretary of DENR;

2. SEM did not acquire vested right over the disputed area because its supposed right
was extinguished by the expiration of its exploration permit and by its violation of
the condition prohibiting the assignment of EP 133 by MMC to SEM. In addition,
even assuming that SEM has a valid exploration permit, such is a mere license that
can be withdrawn by the State. In fact, the same has been withdrawn by the
issuance of Proclamation No. 297, which places the disputed area under the full
control of the State through the Executive Department;

3. The approval requirement under Section 97 of Presidential Decree No. 463 applies
to the assignment of EP 133 by MMC to SEM, since the exploration permit is an
interest in a mining lease contract;

4. The issue of the constitutionality and the legality of Proclamation No. 297 was
raised belatedly, as SEM questions the same for the first time in its Motion for
Reconsideration. Even if the issue were to be entertained, the said proclamation is
found to be in harmony with the Constitution and other existing statutes;

5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon
because they are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to accept their
applications for exploration permits cannot be granted, since it is the Executive
Department that has the prerogative to accept such applications, if ever it decides
to award the mining operations in the disputed area to a private entity;

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

WHEREFORE, premises considered, the Court holds:

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

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

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

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

SO ORDERED.
EN BANC

[G.R. No. 110249. August 21, 1997]

ALFREDO TANO, BALDOMERO TANO, DANILO TANO, ROMUALDO TANO,


TEOCENES MIDELLO, ANGEL DE MESA, EULOGIO TREMOCHA, FELIPE
ONGONION, JR., ANDRES LINIJAN, ROBERT LIM, VIRGINIA LIM, FELIMON
DE MESA, GENEROSO ARAGON, TEODORICO ANDRE, ROMULO DEL
ROSARIO, CHOLITO ANDRE, ERICK MONTANO, ANDRES OLIVA, VITTORIO
SALVADOR, LEOPOLDO ARAGON, RAFAEL RIBA, ALEJANDRO LEONILA,
JOSE DAMACINTO, RAMIRO MANAEG, RUBEN MARGATE, ROBERTO
REYES, DANILO PANGARUTAN, NOE GOLPAN,ESTANISLAO ROMERO,
NICANOR DOMINGO, ROLDAN TABANG, PANGANIBAN, ADRIANO
TABANG, FREDDIE SACAMAY, MIGUEL TRIMOCHA, PACENCIO LABABIT,
PABLO H. OMPAD, CELESTINO A. ABANO, ALLAN ALMODAL, BILLY D.
BARTOLAY, ALBINO D. LIQUE, MELCHOR J. LAYSON, MELANI AMANTE,
CLARO E. YATOC, MERGELDO B. BALDEO, EDGAR M. ALMASET A.,
JOSELITO MANAEG, LIBERATO ANDRADA, JR., ROBERTO BERRY,
RONALD VILLANUEVA, EDUARDO VALMORIA, WILDREDO MENDOZA,
NAPOLEON BABANGA, ROBERTO TADEPA, RUBEN ASINGUA, SILVERIO
GABO, JERRY ROMERO, DAVID PANGAGARUTAN, DANIEL
PANGGARUTAN, ROMEO AGAWIN, FERNANDO EQUIZ, DITO LEQUIZ,
RONILO ODERABLE, BENEDICTO TORRES, ROSITO A. VALDEZ,
CRESENCIO A. SAYANG, NICOMEDES S. ACOSTA, ERENEO A. SEGARINO,
JR., WILDREDO A. RAUTO, DIOSDADO A. ACOSTA, BONIFACIO G. SISMO,
TACIO ALUBA, DANIEL B. BATERZAL, ELISEO YBAEZ, DIOSDADO E.
HANCHIC, EDDIE ESCALICAS, ELEAZAR
B. BATERZAL, DOMINADOR HALICHIC, ROOSEVELT RISMO-AN, ROBERT
C. MERCADER, TIRSO ARESGADO, DANIEL CHAVEZ, DANILO CHAVEZ,
VICTOR VILLAROEL, ERNESTO C. YABANEZ, ARMANDO T. SANTILLAN,
RUDY S. SANTILLAN, JODJEN ILUSTRISIMO, NESTOR SALANGRON,
ALBERTO SALANGRON, ROGER L. ROXAS, FRANCISCO T. ANTICANO,
PASTOR SALANGRON, BIENVENIDO SANTILLAN, GILBUENA LADDY,
FIDEL BENJAMIN JOVELITO BELGANO, HONEY PARIOL, ANTONIO
SALANGRON, NICASIO SALANGRON, & AIRLINE SHIPPERS ASSOCIATION
OF PALAWAN, petitioners, vs. GOV. SALVADOR P. SOCRATES, MEMBERS
OF SANGGUNIAN PANLALAWIGAN OF PALAWAN, namely, VICE-
GOVERNOR JOEL T. REYES, JOSE D. ZABALA, ROSALINO R. ACOSTA,
JOSELITO A. CADLAON, ANDRES R. BAACO, NELSON P. PENEYRA,
CIPRIANO C. BARROMA, CLARO E. ORDINARIO, ERNESTO A. LLACUN,
RODOLFO C. FLORDELIZA, GILBERT S. BAACO, WINSTON G. ARZAGA,
NAPOLEON F. ORDONEZ and GIL P. ACOSTA, CITY MAYOR EDWARD
HAGEDORN, MEMBERS OF SANGGUNIANG PANLUNGSOD NG PUERTO
PRINCESA, ALL MEMBERS OF BANTAY DAGAT, MEMBERS OF PHILIPPINE
NATIONAL POLICE OF PALAWAN, PROVINCIAL AND CITY PROSECUTORS
OF PALAWAN and PUERTO PRINCESA CITY, and ALL JUDGES OF
PALAWAN, REGIONAL, MUNICIPAL AND METROPOLITAN, respondents.

DECISION
DAVIDE, JR., J.:

Petitioners caption their petition as one for Certiorari, Injunction With Preliminary Mandatory
Injunction,with Prayer for Temporary Restraining Order and pray that this Court: (1) declare as
unconstitutional: (a) Ordinance No. 15-92, dated 15 December 1992, of the Sangguniang
Panlungsod of Puerto Princesa; (b) Office Order No. 23, Series of 1993, dated 22 January 1993,
issued by Acting City Mayor Amado L. Lucero of Puerto Princesa City; and (c) Resolution No. 33,
Ordinance No. 2, Series of 1993, dated 19 February 1993, of the Sangguniang Panlalawigan of
Palawan; (2) enjoin the enforcement thereof; and (3) restrain respondents Provincial and City
Prosecutors of Palawan and Puerto Princesa City and Judges of Regional Trial Courts, Metropolitan
Trial Courts and Municipal Circuit Trial Courts in Palawan from assuming jurisdiction over and
[1]

hearing cases concerning the violation of the Ordinances and of the Office Order.

More appropriately, the petition is, and shall be treated as, a special civil action for certiorari and
prohibition.

The following is petitioners summary of the factual antecedents giving rise to the petition:

1. On December 15, 1992, the Sangguniang Panlungsod ng Puerto Princesa City enacted Ordinance
No. 15-92 which took effect on January 1, 1993 entitled: AN ORDINANCE BANNING THE
SHIPMENT OF ALL LIVE FISH AND LOBSTER OUTSIDE PUERTO PRINCESA CITY FROM
JANUARY 1, 1993 TO JANUARY 1, 1998 AND PROVIDING EXEMPTIONS, PENALTIES
AND FOR OTHER PURPOSES THEREOF, the full text of which reads as follows:

Section 1. Title of the Ordinance. - This Ordinance is entitled: AN ORDINANCE BANNING THE
SHIPMENT OF ALL LIVE FISH AND LOBSTER OUTSIDE PUERTO PRINCESA CITY FROM
JANUARY 1, 1993 TO JANUARY 1, 1998 AND PROVIDING EXEMPTIONS, PENALTIES
AND FOR OTHER PURPOSES THEREOF.

Section 2. Purpose, Scope and Coverage. - To effectively free our City Sea Waters from Cyanide
and other Obnoxious substance, and shall cover all persons and/or entities operating within and
outside the City of Puerto Princesa who is are [sic] directly or indirectly in the business or shipment
of live fish and lobster outside the City.

Section 3. Definition of terms. - For purpose of this Ordinance the following are hereby defined:

A. SEA BASS - A kind of fish under the family of Centropomidae, better known as APAHAP;

B. CATFISH - A kind of fish under the family of Plotosidae, better known as HITO-HITO;

C. MUDFISH - A kind of fish under the family of Orphicaphalisae better known as DALAG

D. ALL LIVE FISH - All alive, breathing not necessarily moving of all specie[s] use for food and
for aquarium purposes.

E. LIVE LOBSTER - Several relatively, large marine crustaceans of the genus Homarus that are
alive and breathing not necessarily moving.

Section 4. It shall be unlawful [for] any person or any business enterprise or company to ship out
from Puerto Princesa City to any point of destination either via aircraft or seacraft of any live fish
and lobster except SEA BASS, CATFISH, MUDFISH, AND MILKFISH FRIES.

Section 5. Penalty Clause. - Any person/s and or business entity violating this Ordinance shall be
penalized with a fine of not more than P5,000.00 or imprisonment of not more than twelve (12)
months, cancellation of their permit to do business in the City of Puerto Princesa or all of the herein
stated penalties, upon the discretion of the court.

Section 6. If the owner and/or operator of the establishment found vilating the provisions of this
ordinance is a corporation or a partnership, the penalty prescribed in Section 5 hereof shall be
imposed upon its president and/or General Manager or Managing Partner and/or Manager, as the
case maybe [sic].

Section 7. Any existing ordinance or any provision of any ordinance inconsistent to [sic] this
ordinance is deemed repealed.

Section 8. This Ordinance shall take effect on January 1, 1993.

SO ORDAINED.

xxx
2. To implement said city ordinance, then Acting City Mayor Amado L. Lucero issued Office Order
No. 23, Series of 1993 dated January 22, 1993 which reads as follows:

In the interest of public service and for purposes of City Ordinance No. PD426-14-74, otherwise
known as AN ORDINANCE REQUIRING ANY PERSON ENGAGED OR INTENDING TO
ENGAGE IN ANY BUSINESS, TRADE, OCCUPATION, CALLING OR PROFESSION OR
HAVING IN HIS POSSESSION ANY OF THE ARTICLES FOR WHICH A PERMIT IS
REQUIRED TO BE HAD, TO OBTAIN FIRST A MAYORS PERMIT and City Ordinance No. 15-
92, AN ORDINANCE BANNING THE SHIPMENT OF ALL LIVE FISH AND LOBSTER
OUTSIDE PUERTO PRINCESA CITY FROM JANUARY 1, 1993 TO JANUARY 1, 1998, you
are hereby authorized and directed to check or conduct necessary inspections on cargoes containing
live fish and lobster being shipped out from the Puerto Princesa Airport, Puerto Princesa Wharf or
at any port within the jurisdiction of the City to any point of destinations [sic] either via aircraft or
seacraft.

The purpose of the inspection is to ascertain whether the shipper possessed the required Mayors
Permit issued by this Office and the shipment is covered by invoice or clearance issued by the local
office of the Bureau of Fisheries and Aquatic Resources and as to compliance with all other
existing rules and regulations on the matter.

Any cargo containing live fish and lobster without the required documents as stated herein must be
held for proper disposition.

In the pursuit of this Order, you are hereby authorized to coordinate with the PAL Manager, the
PPA Manager, the local PNP Station and other offices concerned for the needed support and
cooperation. Further, that the usual courtesy and diplomacy must be observed at all times in the
conduct of the inspection.

Please be guided accordingly.

xxx

3. On February 19, 1993, the Sangguniang Panlalawigan, Provincial Government of Palawan


enacted Resolution No. 33 entitled: A RESOLUTION PROHIBITING THE CATCHING,
GATHERING, POSSESSING, BUYING, SELLING AND SHIPMENT OF LIVE MARINE
CORAL DWELLING AQUATIC ORGANISMS, TO WIT:
FAMILY: SCARIDAE (MAMENG), EPINE PHELUS FASCIATUS(SUNO). CROMILEPTES
ALTIVELIS (PANTHER OR SENORITA), LOBSTER BELOW 200 GRAMS AND
SPAWNING, TRADACNA GIGAS (TAKLOBO), PINCTADA MARGARITEFERA (MOTHER
PEARL, OYSTERS, GIANT CLAMS AND OTHER SPECIES), PENAEUS MONODON (TIGER
PRAWN-BREEDER SIZE OR MOTHER), EPINEPHELUS SUILLUS (LOBA OR GREEN
GROUPER) AND FAMILY: BALISTIDAE (TROPICAL AQUARIUM FISHES) FOR A PERIOD
FIVE (5) YEARS IN AND COMING FROM PALAWAN WATERS, the full text of which reads as
follows:
WHEREAS, scientific and factual researches [sic] and studies disclose that only five (5) percent of
the corals of our province remain to be in excellent condition as [a] habitat of marine coral dwelling
aquatic organisms;

WHEREAS, it cannot be gainsaid that the destruction and devastation of the corals of our province
were principally due to illegal fishing activities like dynamite fishing, sodium cyanide fishing, use
of other obnoxious substances and other related activities;

WHEREAS, there is an imperative and urgent need to protect and preserve the existence of the
remaining excellent corals and allow the devastated ones to reinvigorate and regenerate themselves
into vitality within the span of five (5) years;

WHEREAS, Sec. 468, Par. 1, Sub-Par. VI of the [sic] R.A. 7160 otherwise known as the Local
Government Code of 1991 empowers the Sangguniang Panlalawigan to protect the environment
and impose appropriate penalties [upon] acts which endanger the environment such as dynamite
fishing and other forms of destructive fishing, among others.

NOW, THEREFORE, on motion by Kagawad Nelson P. Peneyra and upon unanimous decision of
all the members present;

Be it resolved as it is hereby resolved, to approve Resolution No. 33, Series of 1993 of the
Sangguniang Panlalawigan and to enact Ordinance No. 2 for the purpose, to wit:

ORDINANCE NO. 2

Series of 1993

BE IT ORDAINED BY THE SANGGUNIANG PANLALAWIGAN IN SESSION ASSEMBLED:

Section 1. TITLE - This Ordinance shall be known as an Ordinance Prohibiting the catching,
gathering, possessing, buying, selling and shipment of live marine coral dwelling aquatic
organisms, to wit: 1. Family: Scaridae (Mameng), 2. Epinephelus Fasciatus (Suno), 3. Cromileptes
altivelis (Panther or Senorita), lobster below 200 grams and spawning), 4. Tridacna Gigas
(Taklobo), 5. Pinctada Margaretefera (Mother Pearl, Oysters, Giant Clams and other species), 6.
Penaeus Monodon (Tiger Prawn-breeder size or mother), 7. Epinephelus Suillus (Loba or Green
Grouper) and 8. Family: Balistidae (Topical Aquarium Fishes) for a period of five (5) years in and
coming from Palawan Waters.

Section II. PRELIMINARY CONSIDERATIONS

1. Sec. 2-A (Rep. Act 7160). It is hereby declared, the policy of the state that the territorial and
political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self reliant communities and make them more effective
partners in the attainment of national goals. Toward this end, the State shall provide for [a] more
responsive and accountable local government structure instituted through a system of
decentralization whereby local government units shall be given more powers, authority,
responsibilities and resources.

2. Sec. 5-A (R.A. 7160). Any provision on a power of [a] local Government Unit shall be liberaly
interpreted in its favor, and in case of doubt, any question thereon shall be resolved in favor of
devolution of powers and of the lower government units. Any fair and reasonable doubts as to the
existence of the power shall be interpreted in favor of the Local Government Unit concerned.

3. Sec. 5-C (R.A. 7160). The general welfare provisions in this Code shall be liberally interpreted
to give more powers to local government units in accelerating economic development and
upgrading the quality of life for the people in the community.

4. Sec. 16 (R.A. 7160). General Welfare. - Every local government unit shall exercise the powers
expressly granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or
incidental for its efficient and effective governance; and those which are essential to the promotion
of the general welfare.

Section III. DECLARATION OF POLICY. - It is hereby declared to be the policy of the Province
of Palawan to protect and conserve the marine resources of Palawan not only for the greatest good
of the majority of the present generation but with [the] proper perspective and consideration of [sic]
their prosperity, and to attain this end, the Sangguniang Panlalawigan henceforth declares that is
[sic] shall be unlawful for any person or any business entity to engage in catching, gathering,
possessing, buying, selling and shipment of live marine coral dwelling aquatic organisms as
enumerated in Section 1 hereof in and coming out of Palawan Waters for a period of five (5) years;

Section IV. PENALTY CLAUSE. - Any person and/or business entity violating this Ordinance shall
be penalized with a fine of not more than Five Thousand Pesos (P5,000.00), Philippine Currency,
and/or imprisonment of six (6) months to twelve (12) months and confiscation and forfeiture of
paraphernalias [sic] and equipment in favor of the government at the discretion of the Court;

Section V. SEPARABILITY CLAUSE. - If for any reason, a Section or provision of this Ordinance
shall be held as unconditional [sic] or invalid, it shall not affect the other provisions hereof.

Section VI. REPEALING CLAUSE. - Any existing Ordinance or a provision of any ordinance
inconsistent herewith is deemed modified, amended or repealed.

Section VII. EFFECTIVITY. - This Ordinance shall take effect ten (10) days after its publication.

SO ORDAINED.

xxx

4. The respondents implemented the said ordinances, Annexes A and C hereof thereby depriving all
the fishermen of the whole province of Palawan and the City of Puerto Princesa of their only means
of livelihood and the petitioners Airline Shippers Association of Palawan and other marine
merchants from performing their lawful occupation and trade;

5. Petitioners Alfredo Tano, Baldomero Tano, Teocenes Midello, Angel de Mesa, Eulogio
Tremocha, and Felipe Ongonion, Jr. were even charged criminally under criminal case no. 93-05-C
in the 1st Municipal Circuit Trial Court of Cuyo-Agutaya-Magsaysay, an original carbon copy of
the criminal complaint dated April 12, 1993 is hereto attached as Annex D; while xerox copies are
attached as Annex D to the copies of the petition;

6. Petitioners Robert Lim and Virginia Lim, on the other hand, were charged by the respondent PNP
with the respondent City Prosecutor of Puerto Princesa City, a xerox copy of the complaint is
hereto attached as Annex E;

Without seeking redress from the concerned local government units, prosecutors office and
courts, petitioners directly invoked our original jurisdiction by filing this petition on 4 June 1993. In
sum, petitioners contend that:

First, the Ordinances deprived them of due process of law, their livelihood, and unduly restricted
them from the practice of their trade, in violation of Section 2, Article XII and Sections 2 and 7 of
Article XIII of the 1987 Constitution.

Second, Office Order No. 23 contained no regulation nor condition under which the Mayors
permit could be granted or denied; in other words, the Mayor had the absolute authority to determine
whether or not to issue permit.

Third, as Ordinance No. 2 of the Province of Palawan altogether prohibited the catching,
gathering, possession, buying, selling and shipping of live marine coral dwelling organisms, without
any distinction whether it was caught or gathered through lawful fishing method, the Ordinance took
away the right of petitioners-fishermen to earn their livelihood in lawful ways; and insofar as
petitioners-members of Airline Shippers Association are concerned, they were unduly prevented from
pursuing their vocation and entering into contracts which are proper, necessary, and essential to carry
out their business endeavors to a successful conclusion.

Finally, as Ordinance No. 2 of the Sangguniang Panlalawigan is null and void, the criminal cases
based thereon against petitioners Tano and the others have to be dismissed.

In the Resolution of 15 June 1993 we required respondents to comment on the petition, and
furnished the Office of the Solicitor General with a copy thereof.

In their comment filed on 13 August 1993, public respondents Governor Socrates and Members
of the Sangguniang Panlalawigan of Palawan defended the validity of Ordinance No.2, Series of
1993, as a valid exercise of the Provincial Governments power under the general welfare clause
(Section 16 of the Local Government Code of 1991 [hereafter, LGC]), and its specific power to protect
the environment and impose appropriate penalties for acts which endanger the environment, such as
dynamite fishing and other forms of destructive fishing under Section 447 (a) (1) (vi), Section 458 (a)
(1) (vi), and Section 468 (a) (1) (vi), of the LGC. They claimed that in the exercise of such powers, the
Province of Palawan had the right and responsibilty to insure that the remaining coral reefs, where
fish dwells [sic], within its territory remain healthy for the future generation. The Ordinance, they
further asserted, covered only live marine coral dwelling aquatic organisms which were enumerated
in the ordinance and excluded other kinds of live marine aquatic organisms not dwelling in coral reefs;
besides the prohibition was for only five (5) years to protect and preserve the pristine coral and allow
those damaged to regenerate.

Aforementioned respondents likewise maintained that there was no violation of due process and
equal protection clauses of the Constitution. As to the former, public hearings were conducted before
the enactment of the Ordinance which, undoubtedly, had a lawful purpose and employed reasonable
means; while as to the latter, a substantial distinction existed between a fisherman who catches live
fish with the intention of selling it live, and a fisherman who catches live fish with no intention at all of
selling it live, i.e., the former uses sodium cyanide while the latter does not. Further, the Ordinance
applied equally to all those belonging to one class.

On 25 October 1993 petitioners filed an Urgent Plea for the Immediate Issuance of a Temporary
Restraining Order claiming that despite the pendency of this case, Branch 50 of the Regional Trial
Court of Palawan was bent on proceeding with Criminal Case No. 11223 against petitioners Danilo
Tano, Alfredo Tano, Eulogio Tremocha, Romualdo Tano, Baldomero Tano, Andres Lemihan and Angel
de Mesa for violation of Ordinance No. 2 of the Sangguniang Panlalawigan of Palawan. Acting on
said plea, we issued on 11 November 1993 a temporary restraining order directing Judge Angel
Miclat of said court to cease and desist from proceeding with the arraignment and pre-trial of Criminal
Case No. 11223.

On 12 July 1994, we excused the Office of the Solicitor General from filing a comment,
considering that as claimed by said office in its Manifestation of 28 June 1994, respondents were
already represented by counsel.

The rest of the respondents did not file any comment on the petition.

In the resolution of 15 September 1994, we resolved to consider the comment on the petition as
the Answer, gave due course to the petition and required the parties to submit their respective
memoranda. [2]

On 22 April 1997 we ordered impleaded as party respondents the Department of Agriculture and
the Bureau of Fisheries and Aquatic Resources and required the Office of the Solicitor General to
comment on their behalf. But in light of the latters motion of 9 July 1997 for an extension of time to file
the comment which would only result in further delay, we dispensed with said comment.

After due deliberation on the pleadings filed, we resolved to dismiss this petition for want of merit,
on 22 July 1997, and assigned it to the ponente for the writing of the opinion of the Court.

There are actually two sets of petitioners in this case. The first is composed of Alfredo Tano,
Baldomero Tano, Danilo Tano, Romualdo Tano, Teocenes Midello, Angel de Mesa, Eulogio Tremocha,
Felipe Ongonion, Jr., Andres Linijan, and Felimon de Mesa, who were criminally charged with
violating Sangguniang Panlalawigan Resolution No. 33 and Ordinance No. 2, Series of 1993, of the
Province of Palawan, in Criminal Case No. 93-05-C of the 1 Municipal Circuit Trial Court (MCTC) of
st

Palawan; and Robert Lim and Virginia Lim who were charged with violating City Ordinance No. 15-
[3]

92 of Puerto Princesa City and Ordinance No. 2, Series of 1993, of the Province of Palawan before
the Office of the City Prosecutor of Puerto Princesa. All of them, with the exception of Teocenes
[4]

Midello, Felipe Ongonion, Jr., Felimon de Mesa, Robert Lim and Virginia Lim, are likewise the
accused in Criminal Case No. 11223 for the violation of Ordinance No. 2 of the Sangguniang
Panlalawigan of Palawan, pending before Branch 50 of the Regional Trial Court of Palawan. [5]

The second set of petitioners is composed of the rest of the petitioners numbering seventy-seven
(77), all of whom, except the Airline Shippers Association of Palawan -- an alleged private association
of several marine merchants -- are natural persons who claim to be fishermen.

The primary interest of the first set of petitioners is, of course, to prevent the prosecution, trial and
determination of the criminal cases until the constitutionality or legality of the Ordinances they
allegedly violated shall have been resolved. The second set of petitioners merely claim that they
being fishermen or marine merchants, they would be adversely affected by the ordinances.

As to the first set of petitioners, this special civil for certiorari must fail on the ground of
prematurity amounting to a lack of cause of action. There is no showing that the said petitioners, as
the accused in the criminal cases, have filed motions to quash the informations therein and that the
same were denied. The ground available for such motions is that the facts charged therein do not
constitute an offense because the ordinances in question are unconstitutional. It cannot then be said
[6]

that the lower courts acted without or in excess of jurisdiction or with grave abuse of discretion to
justify recourse to the extraordinary remedy of certiorari or prohibition. It must further be stressed that
even if the petitioners did file motions to quash, the denial thereof would not forthwith give rise to a
cause of action under Rule 65 of the Rules of Court. The general rule is that where a motion to quash
is denied, the remedy therefrom is not certiorari, but for the party aggrieved thereby to go to trial
without prejudice to reiterating special defenses involved in said motion, and if, after trial on the merits
of adverse decision is rendered, to appeal therefrom in the manner authorized by law. And , even [7]

where in an exceptional circumstance such denial may be the subject of a special civil action
for certiorari, a motion for reconsideration must have to be filed to allow the court concerned an
opportunity to correct its errors, unless such motion may be dispensed with because of existing
exceptional circumstances. Finally, even if a motion for reconsideration has been filed and denied,
[8]

the remedy under Rule 65 is still unavailable absent any showing of the grounds provided for in
Section 1 thereof. For obvious reasons, the petition at bar does not, and could not have , alleged any
[9]

of such grounds.

As to the second set of petitioners, the instant petition is obviously one for DECLARATORY
RELIEF, i.e., for a declaration that the Ordinances in question are a nullity ... for being
unconstitutional. As such, their petition must likewise fail, as this Court is not possessed of original
[10]

jurisdiction over petitions for declaratory relief even if only questions of law are involved, it being[11]

settled that the Court merely exercises appellate jurisdiction over such petitions. [12]

II

Even granting arguendo that the first set of petitioners have a cause of action ripe for the
extraordinary writ of certiorari, there is here a clear disregard of the hierarchy of courts, and no
special and important reason or exceptional or compelling circumstance has been adduced why
direct recourse to us should be allowed. While we have concurrent jurisdiction with Regional Trial
courts and with the Court of Appeals to issue writs of certiorari, prohibition, mandamus, quo warranto,
habeas corpus and injunction, such concurrence gives petitioners no unrestricted freedom of choice
of court forum, so we held in People v. Cuaresma: [13]
This concurrence of jurisdiction is not to be taken as according to parties seeking any of the writs
an absolute unrestrained freedom of choice of the court to which application therefor will be
directed. There is after all hierarchy of courts. That hierarchy is determinative of the venue of
appeals, and should also serve as a general determinant of the appropriate forum for petitions for
the extraordinary writs.A becoming regard for that 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 Courts original jurisdiction to issue these writs should be allowed only
when 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
Courts time and attention which are better devoted to those matters within its exclusive jurisdiction,
and to prevent further over-crowding of the Courts docket.

The Court feels the need to reaffirm that policy at this time, and to enjoin strict adherence thereto in
the light of what it perceives to be a growing tendency on the part of litigants and lawyers to have
their applications for the so-called extraordinary writs, and sometimes even their appeals, passed
upon and adjudicated directly and immediately by the highest tribunal of the land.

In Santiago v. Vasquez, this Court forcefully expressed that the propensity of litigants and
[14]

lawyers to disregard the hierarchy of courts must be put to a halt, not only because of the imposition
upon the precious time of this Court, but also because of the inevitable and resultant delay, intended
or otherwise, in the adjudication of the case which often has to be remanded or referred to the lower
court, the proper forum under the rules of procedure, or as better equipped to resolve the issues
since this Court is not a trier of facts. We reiterated the judicial policy that this Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the appropriate courts or where
exceptional and compelling circumstances justify availment of a remedy within and calling for the
exercise of [its] primary jurisdiction.

III

Notwithstanding the foregoing procedural obstacles against the first set of petitioners, we opt to
resolve this case on its merits considering that the lifetime of the challenged Ordinances is about to
end. Ordinance No. 15-92 of the City of Puerto Princesa is effective only up to 1 January 1998, while
Ordinance No. 2 of the Province of Palawan, enacted on 19 February 1993, is effective for only five
(5) years. Besides, these Ordinances were undoubtedly enacted in the exercise of powers under the
new LGC relative to the protection and preservation of the environment and are thus novel and of
paramount importance. No further delay then may be allowed in the resolution of the issues raised.

It is of course settled that laws (including ordinances enacted by local government units) enjoy
the presumption of constitutionality. To overthrow this presumption, there must be a clear and
[15]

unequivocal breach of the Constitution, not merely a doubtful or argumentative contradiction. In short,
the conflict with the Constitution must be shown beyond reasonable doubt. Where doubt exists,
[16]

even if well founded, there can be no finding of unconstitutionality. To doubt is to sustain. [17]

After a scrunity of the challenged Ordinances and the provisions of the Constitution petitioners
claim to have been violated, we find petitioners contentions baseless and so hold that the former do
not suffer from any infirmity, both under the Constitution and applicable laws.
Petitioners specifically point to Section 2, Article XII and Sections 2 and 7, Article XIII of the
Constitution as having been transgressed by the Ordinances.

The pertinent portion of Section 2 of Article XII reads:

SEC. 2. x x x

The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and
exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as
well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers,
lakes, bays, and lagoons.

Sections 2 and 7 of Article XIII provide:

Sec. 2. The promotion of social justice shall include the commitment to create economic
opportunities based on freedom of initiative and self-reliance.

xxx

SEC. 7. The State shall protect the rights of subsistence fishermen, especially of local communities,
to the preferential use of the communal marine and fishing resources, both inland and offshore. It
shall provide support to such fishermen through appropriate technology and research, adequate
financial, production, and marketing assistance, and other services. The State shall also protect,
develop, and conserve such resources. The protection shall extend to offshore fishing grounds of
subsistence fishermen against foreign intrusion. Fishworkers shall receive a just share from their
labor in the utilization of marine and fishing resources.

There is absolutely no showing that any of the petitioners qualifies as a subsistence or marginal
fisherman. In their petition, petitioner Airline Shippers Association of Palawan is described as a
private association composed of Marine Merchants; petitioners Robert Lim and Virginia Lim, as
merchants; while the rest of the petitioners claim to be fishermen, without any qualification, however,
as to their status.

Since the Constitution does not specifically provide a definition of the terms subsistence or
marginal fishermen, they should be construed in their general and ordinary sense. A marginal
[18]

fisherman is an individual engaged in fishing whose margin of return or reward in his harvest of fish
as measured by existing price levels is barely sufficient to yield a profit or cover the cost of gathering
the fish, while a subsistence fisherman is one whose catch yields but the irreducible minimum for his
[19]

livelihood. Section 131(p) of the LGC (R.A. No. 7160) defines a marginal farmer or fisherman as
[20]

an individual engaged in subsistence farming or fishing which shall be limited to the sale, barter or
exchange of agricultural or marine products produced by himself and his immediate family. It bears
repeating that nothing in the record supports a finding that any petitioner falls within these definitions.

Besides, Section 2 of Article XII aims primarily not to bestow any right to subsistence fishermen,
but to lay stress on the duty of the State to protect the nations marine wealth. What the provision
merely recognizes is that the State may allow, by law, cooperative fish farming, with priority to
subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons. Our survey of the statute
books reveals that the only provision of law which speaks of the preferential right of marginal
fishermen is Section 149 of the LGC of 1991 which pertinently provides:

SEC. 149. Fishery Rentals, Fees and Charges. -- x x x

(b) The sangguniang bayan may:

(1) Grant fishery privileges to erect fish corrals, oyster, mussels or other aquatic beds or bangus fry
areas, within a definite zone of the municipal waters, as determined by it: Provided, however, That
duly registered organizations and cooperatives of marginal fishermen shall have preferential right to
such fishery privileges ....

In a Joint Administrative Order No. 3, dated 25 April 1996, the Secretary of the Department of
Agriculture and the Secretary of the Department of Interior and Local Government prescribed the
guidelines on the preferential treatment of small fisherfolk relative to the fishery right mentioned in
Section 149. This case, however, does not involve such fishery right.

Anent Section 7 of Article XIII, it speaks not only of the use of communal marine and fishing
resources, but of their protection, development, and conservation. As hereafter shown, the
ordinances in question are meant precisely to protect and conserve our marine resources to the end
that their enjoyment by the people may be guaranteed not only for the present generation, but also for
the generations to come.

The so-called preferential right of subsistence or marginal fishermen to the use of marine
resources is not at all absolute. In accordance with the Regalian Doctrine, marine resources belong to
the State, and, pursuant to the first paragraph of Section 2, Article XII of the Constitution, their
exploration, development and utilization ... shall be under the full control and supervision of the
State. Moreover, their mandated protection, development, and conservation as necessarily
recognized by the framers of the Constitution, imply certain restrictions on whatever right of
enjoyment there may be in favor of anyone. Thus, as to the curtailment of the preferential treatment of
marginal fisherman, the following exchange between Commissioner Francisco Rodrigo and
Commissioner Jose F.S. Bengzon, Jr., took place at the plenary session of the Constitutional
Commission:

MR. RODRIGO:

Let us discuss the implementation of this because I would not raise the hopes of our people,
and afterwards fail in the implementation. How will this be implemented? Will there be a
licensing or giving of permits so that government officials will know that one is really a
marginal fisherman? Or if policeman say that a person is not a marginal fisherman, he can
show his permit, to prove that indeed he is one.

MR. BENGZON:
Certainly, there will be some mode of licensing insofar as this is concerned and this
particular question could be tackled when we discuss the Article on Local Governments --
whether we will leave to the local governments or to Congress on how these things will be
implemented. But certainly, I think our Congressmen and our local officials will not be
bereft of ideas on how to implement this mandate.

xxx

MR. RODRIGO:

So, once one is licensed as a marginal fisherman, he can go anywhere in the Philippines
and fish in any fishing grounds.

MR. BENGZON:

Subject to whatever rules and regulations and local laws that may be passed, may be
existing or will be passed. (underscoring supplied for emphasis).
[21]

What must likewise be borne in mind is the state policy enshrined in the Constitution regarding
the duty of the State to protect and advance the right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of nature. On this score, in Oposa v. Factoran, this
[22] [23]

Court declared:

While the right to balanced and healthful ecology is to be found under the Declaration of Principles
the State Policies and not under the Bill of Rights, it does not follow that it is less important than
any of the civil and political rights enumerated in the latter. Such a right belongs to a different
category of rights altogether for it concerns nothing less than self-preservation and self-
perpetuation - aptly and fittingly stressed by the petitioners - the advancement of which may even
be said to predate all governments and constitutions. As a matter of fact, these basic rights need not
even be written in the Constitution for they are assumed to exist from the inception of humankind.
If they are now explicitly mentioned in the fundamental charter, it is because of the well-founded
fear of its framers that unless the rights to a balanced and healthful ecology and to health are
mandated as state policies by the Constitution itself, thereby highlighting their continuing
importance and imposing upon the state a solemn obligation to preserve the first and protect and
advance the second , the day would not be too far when all else would be lost not only for the
present generation, but also for those to come - generations which stand to inherit nothing but
parched earth incapable of sustaining life.

The right to a balanced and healthful ecology carries with it a correlative duty to refrain from
impairing the environment ...

The LGC provisions invoked by private respondents merely seek to give flesh and blood to the
right of the people to a balanced and healthful ecology. In fact, the General Welfare Clause, expressly
mentions this right:
SEC. 16. General Welfare.-- Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental
for its efficient and effective governance, and those which are essential to the promotion of the
general welfare. Within their respective territorial jurisdictions, local government units shall ensure
and support, among other things, the preservation and enrichment of culture, promote health and
safety, enhance the right of the people to a balanced ecology, encourage and support the
development of appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment among their
residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants.
(underscoring supplied).

Moreover, Section 5(c) of the LGC explicitly mandates that the general welfare provisions of the LGC
shall be liberally interpreted to give more powers to the local government units in accelerating
economic development and upgrading the quality of life for the people of the community.

The LGC vests municipalities with the power to grant fishery privileges in municipal waters and to
impose rentals, fees or charges therefor; to penalize, by appropriate ordinances, the use of
explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of
fishing; and to prosecute any violation of the provisions of applicable fishery laws. Further, [24]

the sangguniang bayan, the sangguniang panlungsod and the sangguniang


panlalawigan are directed to enact ordinances for the general welfare of the municipality and its
inhabitants, which shall include, inter alia, ordinances that [p]rotect the environment and impose
appropriate penalties for acts which endanger the environment such as dynamite fishing and other
forms of destructive fishing ... and such other activities which result in pollution, acceleration of
eutrophication of rivers and lakes or of ecological imbalance. [25]

Finally, the centerpiece of LGC is the system of decentralization as expressly mandated by the
[26]

Constitution. Indispensable thereto is devolution and the LGC expressly provides that [a]ny
[27]

provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of
doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower local
government unit. Any fair and reasonable doubt as to the existence of the power shall be interpreted
in favor of the local government unit concerned, Devolution refers to the act by which the National
[28]

Government confers power and authority upon the various local government units to perform specific
functions and responsibilities.[29]

One of the devolved powers enumerated in the section of the LGC on devolution is the
enforcement of fishery laws in municipal waters including the conservation of mangroves. This [30]

necessarily includes enactment of ordinances to effectively carry out such fishery laws within the
municipal waters.

The term municipal waters, in turn, include not only streams, lakes, and tidal waters within the
municipality, not being the subject of private ownership and not comprised within the national parks,
public forest, timber lands, forest reserves, or fishery reserves, but also marine waters included
between two lines drawn perpendicularly to the general coastline from points where the boundary
lines of the municipality or city touch the sea at low tide and a third line parallel with the general
coastline and fifteen kilometers from it. Under P.D. No. 704, the marine waters included in municipal
[31]
waters is limited to three nautical miles from the general coastline using the above perpendicular lines
and a third parallel line.

These fishery laws which local government units may enforce under Section 17(b), (2), (i) in
municipal waters include: (1) P.D. No. 704; (2) P.D. No. 1015 which, inter alia, authorizes the
establishment of a closed season in any Philippine water if necessary for conservation or ecological
purposes; (3) P.D. No. 1219 which provides for the exploration, exploitation, utilization, and
conservation of coral resources; (4) R.A. No. 5474, as amended by B.P. Blg. 58, which makes it
unlawful for any person, association, or corporation to catch or cause to be caught, sell, offer to sell,
purchase, or have in possession any of the fish specie called gobiidae or ipon during closed season;
and (5) R.A. No. 6451 which prohibits and punishes electrofishing, as well as various issuances of the
BFAR.

To those specifically devolved insofar as the control and regulation of fishing in municipal waters
and the protection of its marine environment are concerned, must be added the following:

1. Issuance of permits to construct fish cages within municipal waters;

2. Issuance of permits to gather aquarium fishes within municipal waters;

3. Issuance of permits to gather kapis shells within municipal waters;

4. Issuance of permits to gather/culture shelled mollusks within municipal waters;

5. Issuance of licenses to establish seaweed farms within municipal waters;

6. Issuance of licenses to establish culture pearls within municipal waters;

7. Issuance of auxiliary invoice to transport fish and fishery products; and

8. Establishment of closed season in municipal waters.

These functions are covered in the Memorandum of Agreement of 5 April 1994 between the
Department of Agriculture and the Department of Interior and Local Government.

In light then of the principles of decentralization and devolution enshrined in the LGC and the
powers granted to local government units under Section 16 (the General Welfare Clause), and under
Sections 149, 447 (a) (1) (vi), 458 (a) (1) (vi) and 468 (a) (1) (vi), which unquestionably involve the
exercise of police power, the validity of the questioned Ordinances cannot be doubted.

Parenthetically, we wish to add that these Ordinances find full support under R.A. No. 7611,
otherwise known as the Strategic Environmental Plan (SEP) for Palawan Act, approved on 19 July
1992. This statute adopts a comprehensive framework for the sustainable development of Palawan
compatible with protecting and enhancing the natural resources and endangered environment of the
province, which shall serve to guide the local government of Palawan and the government agencies
concerned in the formulation and implementation of plans, programs and projects affecting said
province.[32]

At this time then, it would be appropriate to determine the relation between the assailed
Ordinances and the aforesaid powers of the Sangguniang Panlungsod of the City of Puerto Princesa
and the Sangguniang Panlalawigan of the Province of Palawan to protect the environment. To begin,
we ascertain the purpose of the Ordinances as set forth in the statement of purposes or declaration of
policies quoted earlier.

It is clear to the Court that both Ordinances have two principal objectives or purposes: (1) to
establish a closed season for the species of fish or aquatic animals covered therein for a period of
five years, and (2) to protect the corals of the marine waters of the City of Puerto Princesa and the
Province of Palawan from further destruction due to illegal fishing activities.

The accomplishment of the first objective is well within the devolved power to enforce fishery laws
in municipal waters, such as P.D. No. 1015, which allows the establishment of closed seasons. The
devolution of such power has been expressly confirmed in the Memorandum of Agreement of 5 April
1994 between the Department of Agriculture and the Department of Interior and Local Government.

The realization of the second objective falls within both the general welfare clause of the LGC and
the express mandate thereunder to cities and provinces to protect the environment and impose
appropriate penalties for acts which endanger the environment. [33]

The destruction of the coral reefs results in serious, if not irreparable, ecological imbalance, for
coral reefs are among the natures life-support systems. They collect, retain, and recycle nutrients
[34]

for adjacent nearshore areas such as mangroves, seagrass beds, and reef flats; provide food for
marine plants and animals; and serve as a protective shelter for aquatic organisms. It is said that [35]

[e]cologically, the reefs are to the oceans what forests are to continents: they are shelter and
breeding grounds for fish and plant species that will disappear without them. [36]

The prohibition against catching live fish stems, in part, from the modern phenomenon of live-fish
trade which entails the catching of so-called exotic tropical species of fish not only for aquarium use in
the West, but also for the market for live banquet fish [which] is virtually insatiable in ever more
affluent Asia. These exotic species are coral-dwellers, and fishermen catch them by diving in
[37]

shallow water with corraline habitats and squirting sodium cyanide poison at passing fish directly or
onto coral crevices; once affected the fish are immobilized [merely stunned] and then scooped by
hand. The diver then surfaces and dumps his catch into a submerged net attached to the
[38]

skiff . Twenty minutes later, the fish can swim normally. Back on shore, they are placed in holding
pens, and within a few weeks, they expel the cyanide from their system and are ready to be
hauled. Then they are placed in saltwater tanks or packaged in plastic bags filled with seawater for
shipment by air freight to major markets for live food fish. While the fish are meant to survive, the
[39]

opposite holds true for their former home as [a]fter the fisherman squirts the cyanide, the first thing to
perish is the reef algae, on which fish feed. Days later, the living coral starts to expire. Soon the reef
loses its function as habitat for the fish, which eat both the algae and invertebrates that cling to the
coral. The reef becomes an underwater graveyard, its skeletal remains brittle, bleached of all color
and vulnerable to erosion from the pounding of the waves. It has been found that cyanide fishing
[40]

kills most hard and soft corals within three months of repeated application. [41]

The nexus then between the activities barred by Ordinance No. 15-92 of the City of Puerto
Princesa and the prohibited acts provided in Ordinance No. 2, Series of 1993 of the Province of
Palawan, on one hand, and the use of sodium cyanide, on the other, is painfully obvious. In sum, the
public purpose and reasonableness of the Ordinances may not then be controverted.
As to Office Order No. 23, Series of 1993, issued by Acting City Mayor Amado L. Lucero of the
City of Puerto Princesa, we find nothing therein violative of any constitutional or statutory provision.
The Order refers to the implementation of the challenged ordinance and is not the Mayors Permit.

The dissenting opinion of Mr. Justice Josue N. Bellosillo relies upon the lack of authority on the
part of the Sangguniang Panlungsod of Puerto Princesa to enact Ordinance No. 15, Series of 1992,
on the theory that the subject thereof is within the jurisdiction and responsibility of the Bureau of
Fisheries and Aquatic Resources (BFAR) under P.D. No. 704, otherwise known as the Fisheries
Decree of 1975; and that, in any event, the Ordinance is unenforceable for lack of approval by the
Secretary of the Department of Natural Resources (DNR), likewise in accordance with P.D. No. 704.

The majority is unable to accommodate this view. The jurisdiction and responsibility of the BFAR
under P. D. no. 704, over the management, conservation, development, protection, utilization and
disposition of all fishery and aquatic resources of the country is not all-encompassing. First, Section 4
thereof excludes from such jurisdiction and responsibility municipal waters, which shall be under the
municipal or city government concerned, except insofar as fishpens and seaweed culture in municipal
in municipal centers are concerned. This section provides, however, that all municipal or city
ordinances and resolutions affecting fishing and fisheries and any disposition thereunder shall be
submitted to the Secretary of the Department of Natural Resources for appropriate action and shall
have full force and effect only upon his approval.[42]

Second, it must at once be pointed out that the BFAR is no longer under the Department of
Natural Resources (now Department of Environment and Natural Resources). Executive Order No.
967 of 30 June 1984 transferred the BFAR from the control and supervision of the Minister (formerly
Secretary) of Natural Resources to the Ministry of Agriculture and Food (MAF) and converted it into a
mere staff agency thereof, integrating its functions with the regional offices of the MAF.

In Executive Order No. 116 of 30 January 1987, which reorganized the MAF, the BFAR was
retained as an attached agency of the MAF. And under the Administrative Code of 1987, the BFAR
[43]

is placed under the Title concerning the Department of Agriculture. [44]

Therefore, it is incorrect to say that the challenged Ordinance of the City of Puerto Princesa is
invalid or unenforceable because it was not approved by the Secretary of the DENR. If at all, the
approval that should be sought would be that of the Secretary of the Department of Agriculture (not
DENR) of municipal ordinances affecting fishing and fisheries in municipal waters has been
dispensed with in view of the following reasons:

(1) Section 534 (Repealing Clause) of the LGC expressly repeals or amends Section 16 and 29
of P.D. No. 704 insofar that they are inconsistent with the provisions of the LGC.
[45]

(2) As discussed earlier, under the general welfare clause of the LGC, local government units
have the power, inter alia, to enact ordinances to enhance the right of the people to a balanced
ecology. It likewise specifically vests municipalities with the power to grant fishery privileges in
municipal waters, and impose rentals, fees or charges therefor; to penalize, by appropriate
ordinances, the use of explosives, noxious or poisonous substances, electricity, muro-ami, and other
deleterious methods of fishing; and to prosecute other methods of fishing; and to prosecute any
violation of the provisions of applicable fishing laws. Finally, it imposes upon the sangguniang
[46]

bayan, the sangguniang panlungsod, and the sangguniang panlalawigan the duty to enact ordinances
to [p]rotect the environment and impose appropriate penalties for acts which endanger the
environment such as dynamite fishing and other forms of destructive fishing and such other activities
which result in pollution, acceleration of eutrophication of rivers and lakes or of ecological imbalance.
[47]

In closing, we commend the Sangguniang Panlungsod of the City of Puerto Princesa


and Sangguniang Panlalawigan of the Province of Palawan for exercising the requisite political will to
enact urgently needed legislation to protect and enhance the marine environment, thereby sharing in
the herculean task of arresting the tide of ecological destruction. We hope that other local government
units shall now be roused from their lethargy and adopt a more vigilant stand in the battle against the
decimation of our legacy to future generations. At this time, the repercussions of any further delay in
their response may prove disastrous, if not, irreversible.

WHEREFORE, the instant petition is DISMISSED for lack of merit and the temporary restraining
order issued on 11 November 1993 is LIFTED.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Padilla, Vitug, Panganiban, and Torres, Jr., JJ., concur.

Romero, Melo, Puno, and Francisco, JJ., joined the ponencias of Justices Davide and Mendoza.

Bellosillo, J., see dissenting opinion.

Kapunan and Hermosisima, Jr., JJ., join Justice Bellosillo in his dissenting opinion.

Mendoza, see concurring opinion.

Regalado, J., on official leave.


[G.R. No. 119619. December 13, 1996]

RICHARD HIZON, SILVERIO GARGAR, ERNESTO ANDAYA, NEMESIO GABO,


RODRIGO ABRERA, CHEUNG TAI FOOK, SHEK CHOR LUK, EFREN DELA
PENA, JONEL AURELIO, GODOFREDO VILLAVERDE, ANGELITO
DUMAYBAG, DEOMEDES ROSIL, AMADO VILLANUEVA, FRANCISCO
ESTREMOS, ANGEL VILLAVERDE, NEMESIO CASAMPOL, RICHARD
ESTREMOS, JORNIE DELA PENA, JESUS MACTAN, MARLON
CAMPORAZO, FERNANDO BIRING, MENDRITO CARPO, LUIS DUARTE,
JOSEPH AURELIO, RONNIE JUEZAN, BERNARDO VILLACARLOS,
RICARDO SALES, MARLON ABELLA, TEODORO DELOS REYES, IGNACIO
ABELLA, JOSEPH MAYONADO, JANAIRO LANGUYOD, DODONG DELOS
REYES, JOLLY CABALLERO and ROPLANDO ARCENAS, petitioners,
vs. HONORABLE COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, respondents.

DECISION
PUNO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. CR No. 15417 affirming the decision of the Regional Trial Court, Branch 52, Palawan
in Criminal Case No. 10429 convicting petitioners of the offense of illegal fishing with the
use of obnoxious or poisonous substance penalized under Presidential Decree (P.D.) No.
704, the Fisheries Decree of 1975.

In an Information dated October 15, 1992, petitioners were charged with a violation of
P.D. 704 committed as follows:

That on or about the 30th day of September 1992, at Brgy. San Rafael, Puerto Princesa City,
Philippines and within the jurisdiction of this Honorable Court, the above-named accused crew
members and fishermen of F/B Robinson owned by First Fishermen Fishing Industries, Inc.,
represented by Richard Hizon, a domestic corporation duly organized under the laws of the
Philippines, being then the owner, crew members and fishermen of F/B Robinson and with the use
of said fishing boat, did then and there wilfully, unlawfully and feloniously the said accused
conspiring and confederating together and mutually helping one another catch, take or gather or
cause to be caught, taken or gathered fish or fishery aquatic products in the coastal waters of Puerto
Princesa City, Palawan, with the use of obnoxious or poisonous substance (sodium cyanide), of
more or less one (1) ton of assorted live fishes which were illegally caught thru the use of
obnoxious/poisonous substance (sodium cyanide). [1]

The following facts were established by the prosecution: In September 1992, the
Philippine National Police (PNP) Maritime Command of Puerto Princesa
City, Palawan received reports of illegal fishing operations in the coastal waters of the
city. In response to these reports, the city mayor organized Task Force Bantay Dagat to
assist the police in the detection and apprehension of violators of the laws on fishing.

On September 30, 1992 at about 2:00 in the afternoon, the Task Force Bantay Dagat
reported to the PNP Maritime Command that a boat and several small crafts were fishing
by muro ami within the shoreline of Barangay San Rafael of Puerto Princesa. The police,
headed by SPO3 Romulo Enriquez, and members of the Task Force Bantay Dagat,
headed by Benito Marcelo, Jr., immediately proceeded to the area and found several men
fishing in motorized sampans and a big fishing boat identified as F/B Robinson within the
seven-kilometer shoreline of the city. They boarded the F/B Robinson and inspected the
boat with the acquiescence of the boat captain, Silverio Gargar. In the course of their
inspection, the police saw two foreigners in the captains deck. SPO3 Enriquez examined
their passports and found them to be mere photocopies. The police also discovered a
large aquarium full of live lapu-lapu and assorted fish weighing approximately one ton at
the bottom of the boat. They checked the license of the boat and its fishermen and found
[2]

them to be in order. Nonetheless, SPO3 Enriquez brought the boat captain, the crew and
the fishermen to Puerto Princesa for further investigation.

At the city harbor, members of the Maritime Command were ordered by SPO3
Enriquez to guard the F/B Robinson. The boat captain and the two foreigners were again
interrogated at the PNP Maritime Command office. Thereafter, an
Inspection/Apprehension Report was prepared and the boat, its crew and fishermen were
charged with the following violations:

1. Conducting fishing operations within Puerto Princesa coastal waters without mayors permit;

2. Employing excess fishermen on board (Authorized--26; On board--36);

3. Two (2) Hongkong nationals on board without original passports.[3]

The following day, October 1, 1992, SPO3 Enriquez directed the boat captain to get
random samples of fish from the fish cage of F/B Robinson for laboratory examination. As
instructed, the boat engineer, petitioner Ernesto Andaya, delivered to the Maritime Office
four (4) live lapu-lapu fish inside a plastic shopping bag filled with water. SPO3 Enriquez
received the fish and in the presence of the boat engineer and captain, placed them inside
a large transparent plastic bag without water. He sealed the plastic with heat from a
lighter.
[4]

The specimens were brought to the National Bureau of Investigation (NBI) sub-office in
the city for examination to determine the method of catching the same for record or
evidentiary purposes. They were received at the NBI office at 8:00 in the evening of the
[5]

same day. The receiving clerk, Edna Capicio, noted that the fish were dead and she
placed the plastic bag with the fish inside the office freezer to preserve them. Two days
later, on October 3, 1992, the chief of the NBI sub-office, Onos Mangotara, certified the
specimens for laboratory examination at the NBI Head Office in Manila. The fish samples
were to be personally transported by Edna Capicio who was then scheduled to leave
for Manila for her board examination in Criminology. On October 4, 1992, Ms. Capicio, in
[6]

the presence of her chief, took the plastic with the specimens from the freezer and placed
them inside two shopping bags and sealed them with masking tape. She proceeded to her
ship where she placed the specimens in the ships freezer.

Capicio arrived in Manila the following day, October 5, 1992 and immediately brought
the specimens to the NBI Head Office. On October 7, 1992, NBI Forensic Chemist Emilia
Rosaldes conducted two tests on the fish samples and found that they contained sodium
cyanide, thus:

FINDINGS:

Weight of Specimen 1.870 kilograms Examinations made on the above-mentioned specimen gave
POSITIVE RESULTS to the test for the presence of SODIUM CYANIDE x x x

REMARKS:

Sodium Cyanide is a violent poison. [7]

In light of these findings, the PNP Maritime Command of Puerto Princesa City filed the
complaint at bar against the owner and operator of the F/B Robinson, the First Fishermen
Fishing Industries, Inc., represented by herein petitioner Richard Hizon, the boat captain,
Silverio Gargar, the boat engineer, Ernesto Andaya, two other crew members, the two
Hongkong nationals and 28 fishermen of the said boat.

Petitioners were arraigned and they pled not guilty to the charge. As defense, they
claimed that they are legitimate fishermen of the First Fishermen Industries, Inc., a
domestic corporation licensed to engage in fishing. They alleged that they catch fish by
the hook and line method and that they had used this method for one month and a half in
the waters of Cuyo Island. They related that on September 30, 1992 at about 7:00 A.M.,
they anchored the F/B Robinson in the east of Podiado Island in Puerto Princesa City. The
boat captain and the fishermen took out and boarded their sampans to fish for their
food. They were still fishing in their sampans at 4:00 P.M. when a rubber boat containing
members of the PNP Maritime Command and the Task Force Bantay Dagat approached
them and boarded the F/B Robinson. The policemen were in uniform while the Bantay
Dagat personnel were in civilian clothes. They were all armed with guns. One of the
Bantay Dagat personnel introduced himself as Commander Jun Marcelo and he inspected
the boat and the boats documents. Marcelo saw the two foreigners and asked for their
passports. As their passports were photocopies, Marcelo demanded for their original. The
captain explained that the original passports were with the companys head office
in Manila. Marcelo angrily insisted for the originals and threatened to arrest everybody. He
then ordered the captain, his crew and the fishermen to follow him to Puerto Princesa. He
held the magazine of his gun and warned the captain Sige, huwag kang tatakas, kung
hindi babarilin ko kayo! The captain herded all his men into the boat and followed
[8]

Marcelo and the police to Puerto Princesa.

They arrived at the city harbor at 7:45 in the evening and were met by members of the
media. As instructed by Marcelo, the members of the media interviewed and took pictures
of the boat and the fishermen. [9]

The following day, October 1, 1992, at 8:00 in the morning, Amado Villanueva, one of
the fishermen at the F/B Robinson, was instructed by a policemen guarding the boat to get
five (5) fish samples from the fish cage and bring them to the pier. Villanueva inquired
whether the captain knew about the order but the guard replied he was taking
responsibility for it. Villanueva scooped five pieces of lapu-lapu, placed them inside a
plastic bag filled with water and brought the bag to the pier. The boat engineer, Ernesto
Andaya, received the fish and delivered them to the PNP Maritime Office. Nobody was in
the office and Andaya waited for the apprehending officers and the boat captain. Later,
one of the policemen in the office instructed him to leave the bag and hang it on a nail in
the wall. Andaya did as he was told and returned to the boat at 10:00 A.M.[10]

In the afternoon of the same day, the boat captain arrived at the Maritime office. He
brought along a representative from their head office in Manila who showed the police and
the Bantay Dagat personnel the original passports of the Hongkong nationals and other
pertinent documents of the F/B Robinson and its crew. Finding the documents in order,
Marcelo approached the captain and whispered to him Tandaan mo ito, kapitan, kung
makakaalis ka dito, magkikita pa rin uli tayo sa dagat, kung hindi kayo lulubog ay
palulutangin ko kayo! It was then that SPO3 Enriquez informed the captain that some
members of the Maritime Command, acting under his instructions, had just taken five (5)
pieces of lapu-lapu from the boat. SPO3 Enriquez showed the captain the fish
samples. Although the captain saw only four (4) pieces of lapu-lapu, he did not utter a
word of protest. Under Marcelos threat, he signed the Certification that he received only
[11]

four (4) pieces of fish.


[12]

Two weeks later, the information was filed against petitioners. The case was
prosecuted against thirty-one (31) of the thirty-five (35) accused. Richard Hizon remained
at large while the whereabouts of Richard Estremos, Marlon Camporazo and Joseph
Aurelio were unknown.

On July 9, 1993, the trial court found the thirty one (31) petitioners guilty and
sentenced them to imprisonment for a minimum of eight (8) years and one (1) day to a
maximum of nine (9) years and four (4) months. The court also ordered the confiscation
and forfeiture of the F/B Robinson, the 28 sampans and the ton of assorted live fishes as
instruments and proceeds of the offense, thus:

WHEREFORE, premises considered, judgment is hereby rendered finding the accused


SILVERIO GARGAR, ERNESTO ANDAYA, NEMESIO GABO, RODRIGO ABRERA,
CHEUNG TAI FOOK, SHEK CHOR LUK, EFREN DELA PENA, JONEL AURELIO,
GODOFREDO VILLAVERDE, ANGELITO DUMAYBAG, DEOMEDES ROSIL, AMADO
VILLANUEVA, FRANCISCO ESTREMOS, ARNEL VILLAVERDE, NEMESIO
CASAMPOL, JORNIE DELACRUZ, JESUS MACTAN, FERNANDO BIRING,
MENDRITO CARPO, LUIS DUARTE, RONNIE JUEZAN, BERNARDO VILLACARLOS,
RICARDO SALES, MARLON ABELLA, TEODORO DELOS REYES, IGNACIO
ABELLA, JOSEPH MAYONADO, JANAIRO LANGUYOD, DODONG DELOS REYES,
ROLANDO ARCENAS and JOLLY CABALLERO guilty beyond reasonable doubt of the
crime of Illegal Fishing with the use of obnoxious or poisonous substance commonly known
as sodium cyanide, committed in violation of section 33 and penalized in section 38 of
Presidential Decree No. 704, as amended, and there being neither mitigating nor aggravating
circumstances appreciated and applying the provisions of the Indeterminate Sentence Law,
each of the aforenamed accused is sentenced to an indeterminate penalty of imprisonment
ranging from a minimum of EIGHT (8) YEARS and ONE (1) DAY to a maximum of NINE
(9) YEARS and FOUR (4) MONTHS and to pay the costs.

Pursuant to the provisions of Article 45, in relation to the second sentence of Article 10 of the
Revised Penal Code, as amended:

a) Fishing Boat (F/B) Robinson;

b) The 28 motorized fiberglass sampans; and

c) The live fishes in the fish cages installed in the F/B Robinson, all of which have been
respectively shown to be tools or instruments and proceeds of the offense, are hereby
ordered confiscated and declared forfeited in favor of the government.

SO ORDERED. [13]

On appeal, the Court of Appeals affirmed the decision of the trial court. Hence, this
petition.

Petitioners contend that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE MERE


POSITIVE RESULTS TO THE TEST FOR THE PRESENCE OF SODIUM CYANIDE IN
THE FISH SPECIMEN, ALBEIT ILLEGALLY SEIZED ON THE OCCASION OF A
WARRANTLESS SEARCH AND ARREST, IS ADMISSIBLE AND SUFFICIENT BASIS
FOR THE PETITIONERS CONVICTION OF THE CRIME OF ILLEGAL FISHING.

II
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
STATUTORY PRESUMPTION OF GUILT UNDER SEC. 33 OF PRESIDENTIAL DECREE
NO. 704 CANNOT PREVAIL AGAINST THE CONSTITUTIONAL PRESUMPTION OF
INNOCENCE, SUCH THAT THE GRAVAMEN OF THE OFFENSE OF ILLEGAL
FISHING MUST STILL BE PROVED BEYOND REASONABLE DOUBT.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT REVERSING THE


JUDGMENT OF THE TRIAL COURT AND ACQUITTING THE PETITIONERS. [14]

The Solicitor General submitted a Manifestation in Lieu of Comment praying for


petitioners acquittal. [15]

The petitioners, with the concurrence of the Solicitor General, primarily question the
admissibility of the evidence against petitioners in view of the warrantless search of the
fishing boat and the subsequent arrest of petitioners. More concretely, they contend that
the NBI finding of sodium cyanide in the fish specimens should not have been admitted
and considered by the trial court because the fish samples were seized from the F/B
Robinson without a search warrant.

Our constitution proscribes search and seizure and the arrest of persons without a
judicial warrant. As a general rule, any evidence obtained without a judicial warrant is
[16]

inadmissible for any purpose in any proceeding. The rule is, however, subject to certain
exceptions. Some of these are: (1) a search incident to a lawful arrest; (2) seizure of
[17] [18]

evidence in plain view; (3) search of a moving motor vehicle; and (4) search in violation
[19]

of customs laws. [20]

Search and seizure without search warrant of vessels and aircrafts for violations of
customs laws have been the traditional exception to the constitutional requirement of a
search warrant. It is rooted on the recognition that a vessel and an aircraft, like motor
vehicles, can be quickly moved out of the locality or jurisdiction in which the search
warrant must be sought and secured. Yielding to this reality, judicial authorities have not
required a search warrant of vessels and aircrafts before their search and seizure can be
constitutionally effected. [21]

The same exception ought to apply to seizures of fishing vessels and boats breaching
our fishery laws. These vessels are normally powered by high-speed motors that enable
them to elude arresting ships of the Philippine Navy, the Coast Guard and other
government authorities enforcing our fishery laws. [22]

We thus hold as valid the warrantless search on the F/B Robinson, a fishing boat
suspected of having engaged in illegal fishing. The fish and other evidence seized in the
course of the search were properly admitted by the trial court. Moreover, petitioners failed
to raise the issue during trial and hence, waived their right to question any irregularity that
may have attended the said search and seizure. [23]

Given the evidence admitted by the trial court, the next question now is whether
petitioners are guilty of the offense of illegal fishing with the use of poisonous
substances. Again, the petitioners, joined by the Solicitor General, submit that the
prosecution evidence cannot convict them.

We agree.

Petitioners were charged with illegal fishing penalized under sections 33 and 38 of P.D.
704 which provide as follows:
[24]

Sec. 33. Illegal fishing, illegal possession of explosives intended for illegal fishing; dealing
in illegally caught fish or fishery/aquatic products. -- It shall be unlawful for any person to
catch, take or gather or cause to be caught, taken or gathered fish or fishery/aquatic products
in Philippine waters with the use of explosives, obnoxious or poisonous substance, or by the
use of electricity as defined in paragraphs (l), (m) and (d), respectively, of section 3
hereof: Provided, That mere possession of such explosives with intent to use the same for
illegal fishing as herein defined shall be punishable as hereinafter provided: Provided, That
the Secretary may, upon recommendation of the Director and subject to such safeguards and
conditions he deems necessary, allow for research, educational or scientific purposes only,
the use of explosives, obnoxious or poisonous substance or electricity to catch, take or gather
fish or fishery/aquatic products in the specified area: Provided, further, That the use of
chemicals to eradicate predators in fishponds in accordance with accepted scientific fishery
practices without causing deleterious effects in neighboring waters shall not be construed as
the use of obnoxious or poisonous substance within the meaning of this section: Provided,
finally, That the use of mechanical bombs for killing whales, crocodiles, sharks or other large
dangerous fishes, may be allowed, subject to the approval of the Secretary.

It shall, likewise, be unlawful for any person knowingly to possess, deal in, sell or in any
manner dispose of, for profit, any fish or fishery/aquatic products which have been illegally
caught, taken or gathered.

The discovery of dynamite, other explosives and chemical compounds containing


combustible elements, or obnoxious or poisonous substance, or equipment or device for
electric fishing in any fishing boat or in the possession of a fisherman shall constitute a
presumption that the same were used for fishing in violation of this Decree, and the
discovery in any fishing boat of fish caught or killed by the use of explosives, obnoxious or
poisonous substance or by electricity shall constitute a presumption that the owner, operator
or fisherman were fishing with the use of explosives, obnoxious or poisonous substance or
electricity.

xxxxxxxxx
Sec. 38. Penalties. -- (a) For illegal fishing and dealing in illegally caught fish or
fishery/aquatic products.-- Violation of Section 33 hereof shall be punished as follows:

xxxxxxxxx

(2) By imprisonment from eight (8) to ten (10) years, if obnoxious or poisonous substances
are used: Provided, That if the use of such substances results 1) in physical injury to any
person, the penalty shall be imprisonment from ten (10) to twelve (12) years, or 2) in the loss
of human life, then the penalty shall be imprisonment from twenty (20) years to life or death;

x x x x x x x x x. [25]

The offense of illegal fishing is committed when a person catches, takes or gathers or
causes to be caught, taken or gathered fish, fishery or aquatic products in Philippine
waters with the use of explosives, electricity, obnoxious or poisonous substances. The law
creates a presumption that illegal fishing has been committed when: (a) explosives,
obnoxious or poisonous substances or equipment or device for electric fishing are found in
a fishing boat or in the possession of a fisherman; or (b) when fish caught or killed with the
use of explosives, obnoxious or poisonous substances or by electricity are found in a
fishing boat. Under these instances, the boat owner, operator or fishermen are presumed
to have engaged in illegal fishing.

Petitioners contend that this presumption of guilt under the Fisheries Decree violates
the presumption of innocence guaranteed by the Constitution. As early as 1916, this
[26]

Court has rejected this argument by holding that: [27]

In some States, as well as in England, there exists what are known as common law
offenses. In the Philippine Islands no act is a crime unless it is made so by statute. The state
having the right to declare what acts are criminal, within certain well-defined limitations, has
the right to specify what act or acts shall constitute a crime, as well as what proof shall
constitute prima facie evidence of guilt, and then to put upon the defendant the burden of
showing that such act or acts are innocent and are not committed with any criminal intent or
intention.
[28]

The validity of laws establishing presumptions in criminal cases is a settled matter. It is


generally conceded that the legislature has the power to provide that proof of certain facts
can constitute prima facie evidence of the guilt of the accused and then shift the burden of
proof to the accused provided there is a rational connection between the facts proved and
the ultimate fact presumed. To avoid any constitutional infirmity, the inference of one from
[29]

proof of the other must not be arbitrary and unreasonable. In fine, the presumption must
[30]

be based on facts and these facts must be part of the crime when committed. [31]

The third paragraph of section 33 of P.D. 704 creates a presumption of guilt based on
facts proved and hence is not constitutionally impermissible. It makes the discovery of
obnoxious or poisonous substances, explosives, or devices for electric fishing, or of fish
caught or killed with the use of obnoxious and poisonous substances, explosives or
electricity in any fishing boat or in the possession of a fisherman evidence that the owner
and operator of the fishing boat or the fisherman had used such substances in catching
fish. The ultimate fact presumed is that the owner and operator of the boat or the
fisherman were engaged in illegal fishing and this presumption was made to arise from the
discovery of the substances and the contaminated fish in the possession of the fisherman
in the fishing boat.The fact presumed is a natural inference from the fact proved. [32]

We stress, however, that the statutory presumption is merely prima facie. It can not,
[33]

under the guise of regulating the presentation of evidence, operate to preclude the
accused from presenting his defense to rebut the main fact presumed. At no instance
[34]

can the accused be denied the right to rebut the presumption, thus: [35]

The inference of guilt is one of fact and rests upon the common experience of men. But the
experience of men has taught them that an apparently guilty possession may be explained so
as to rebut such an inference and an accused person may therefore put witnesses on the stand
or go on the witness stand himself to explain his possession, and any reasonable explanation
of his possession, inconsistent with his guilty connection with the commission of the crime,
will rebut the inference as to his guilt which the prosecution seeks to have drawn from his
guilty possession of the stolen goods.
[36]

We now review the evidence to determine whether petitioners have successfully


rebutted this presumption. The facts show that on November 13, 1992, after the
information was filed in court and petitioners granted bail, petitioners moved that the fish
specimens taken from the F/B Robinson be reexamined. The trial court granted the
[37]

motion. As prayed for, a member of the PNP Maritime Command of Puerto Princesa, in
[38]

the presence of authorized representatives of the F/B Robinson, the NBI and the local
Fisheries Office, took at random five (5) live lapu-lapu from the fish cage of the boat. The
specimens were packed in the usual manner of transporting live fish, taken aboard a
commercial flight and delivered by the same representatives to the NBI Head Office in
Manila for chemical analysis.

On November 23, 1992, Salud Rosales, another forensic chemist of the NBI in Manila
conducted three (3) tests on the specimens and found the fish negative for the presence
of sodium cyanide, thus:
[39]

Gross weight of specimen = 3.849 kg.

Examination made on the above-mentioned specimens gave NEGATIVE RESULTS to the


tests for the presence of SODIUM CYANIDE. [40]

The Information charged petitioners with illegal fishing with the use of obnoxious or
poisonous substance (sodium cyanide), of more or less one (1) ton of assorted live
fishes. There was more or less one ton of fishes in the F/B Robinsons fish cage. It was
from this fish cage that the four dead specimens examined on October 7, 1992 and the
five live specimens examined on November 23, 1992 were taken. Though all the
specimens came from the same source allegedly tainted with sodium cyanide, the two
tests resulted in conflicting findings. We note that after its apprehension, the F/B Robinson
never left the custody of the PNP Maritime Command. The fishing boat was anchored
near the city harbor and was guarded by members of the Maritime Command. It was [41]

later turned over to the custody of the Philippine Coast Guard Commander of Puerto
Princesa City. [42]

The prosecution failed to explain the contradictory findings on the fish samples and
this omission raises a reasonable doubt that the one ton of fishes in the cage were caught
with the use of sodium cyanide.

The absence of cyanide in the second set of fish specimens supports petitioners claim
that they did not use the poison in fishing. According to them, they caught the fishes by
the ordinary and legal way, i.e., by hook and line on board their sampans. This claim is
buttressed by the prosecution evidence itself. The apprehending officers saw petitioners
fishing by hook and line when they came upon them in the waters of Barangay San
Rafael. One of the apprehending officers, SPO1 Demetrio Saballuca, testified as follows:

ATTY. TORREFRANCA ON CROSS-EXAMINATION:

Q : I get your point therefore, that the illegal fishing supposedly conducted at San Rafael is a moro
ami type of fishing [that] occurred into your mind and that was made to understand by the Bantay
Dagat personnel?

A : Yes, sir.

Q : Upon reaching the place, you and the pumpboat, together with the two Bantay Dagat personnel
were SPO3 Romulo Enriquez and Mr. Benito Marcelo and SPO1 Marzan, you did not witness that
kind of moro ami fishing, correct?

A : None, sir.

Q :In other words, there was negative activity of moro ami type of fishing on September 30, 1992 at
4:00 in the afternoon at San Rafael?

A : Yes, sir.

Q : And what you saw were 5 motorized Sampans with fishermen each doing a hook and line fishing
type?

A : Yes, sir. More or less they were five.

Q : And despite the fact you had negative knowledge of this moro ami type of fishing, SPO3 Enriquez
together with Mr. Marcelo boarded the vessel just the same?
A : Yes, sir.

x x x x x x x x x. [43]

The apprehending officers who boarded and searched the boat did not find any sodium
cyanide nor any poisonous or obnoxious substance. Neither did they find any trace of the
poison in the possession of the fishermen or in the fish cage itself. An Inventory was
prepared by the apprehending officers and only the following items were found on board
the boat:

ITEMS QUANTITY REMARKS

F/B Robinson (1) unit operating

engine (1) unit ICE-900-BHP

sampans 28 units fiberglass

outboard motors 28 units operating

assorted fishes more or less 1 ton live

hooks and lines assorted

x x x. [44]

We cannot overlook the fact that the apprehending officers found in the boat assorted
hooks and lines for catching fish. For this obvious reason, the Inspection/Apprehension
[45]

Report prepared by the apprehending officers immediately after the search did not charge
petitioners with illegal fishing, much less illegal fishing with the use of poison or any
obnoxious substance. [46]

The only basis for the charge of fishing with poisonous substance is the result of the
first NBI laboratory test on the four fish specimens. Under the circumstances of the case,
however, this finding does not warrant the infallible conclusion that the fishes in the F/B
Robinson, or even the same four specimens, were caught with the use of sodium cyanide.

Prosecution witness SPO1 Bernardino Visto testified that for the first laboratory test ,
boat engineer Ernesto Andaya did not only get four (4) samples of fish but actually got five
(5) from the fish cage of the F/B Robinson. This Certification that four (4) fish samples
[47]

were taken from the boat shows on its face the number of pieces as originally five (5) but
this was erased with correction fluid and four (4) written over it. The specimens were
[48]

taken, sealed inside the plastic bag and brought to Manila by the police authorities in the
absence of petitioners or their representative. SPO2 Enriquez testified that the same
plastic bag containing the four specimens was merely sealed with heat from a lighter.
Emilia Rosaldes, the NBI forensic chemist who examined the samples, testified that
[49]

when she opened the package, she found two ends of the same plastic bag knotted.
These circumstances as well as the time interval from the taking of the fish samples and
[50]

their actual examination fail to assure the impartial mind that the integrity of the
[51]

specimens had been properly safeguarded.

Apparently, the members of the PNP Maritime Command and the Task Force Bantay
Dagat were the ones engaged in an illegal fishing expedition. As sharply observed by the
Solicitor General, the report received by the Task Force Bantay Dagat was that a fishing
boat was fishing illegally through muro ami on the waters of San Rafael. Muro ami
according to SPO1 Saballuca is made with the use of a big net with sinkers to make the
net submerge in the water with the fishermen surround[ing] the net.[52]

This method of fishing needs approximately two hundred (200) fishermen to execute.
What the apprehending officers instead discovered were twenty eight (28) fishermen in
[53]

their discovered were twenty eight (28) fishermen in their sampans fishing by hook and
line. The authorities found nothing on the boat that would have indicated any form of
illegal fishing. All the documents of the boat and the fishermen were in order. It was only
after the fish specimens were tested, albeit under suspicious circumstances, that
petitioners were charged with illegal fishing with the use of poisonous substances.

IN VIEW WHEREOF, the petition is granted and the decision of the Court of Appeals
in CA-G.R. CR No. 15417 is reversed and set aside. Petitioners are acquitted of the crime
of illegal fishing with the use of poisonous substances defined under the Section 33 of
Republic Act No. 704, the Fisheries Decree of 1975. No costs.

SO ORDERED.

Regalado (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

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