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FIRST DIVISION 2. That the cut timber shall be utilized as lumber and fuel-wood by the
permittee;

ERNESTO AQUINO, G.R. No. 165448 3. As replacement, the permittee shall plant one hundred forty (140)
Petitioner, pine seedlings in an appropriate place within the area. In the
Present: absence of plantable area in the property, the same is required
PUNO, C.J., Chairperson, to plant within forest area duly designated by CENRO
CARPIO, concerned which shall be properly maintained and protected to
CORONA, ensure/enhance growth and development of the planted
- versus - LEONARDO-DE CASTRO, and seedlings;
BERSAMIN, JJ.
4. Violation of any of the conditions set hereof is punishable under
Section 68 of PD 705 as amended by E.O. No. 277, Series of
1987; and
PEOPLE OF THE PHILIPPINES, Promulgated:
Respondent. July 27, 2009 5. That non-compliance with any of the above conditions or violations
x - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x of forestry laws and regulations shall render this permit null
and void without prejudice to the imposition of penalties in
accordance with existing laws and regulations.

DECISION

CARPIO, J.: This PERMIT is non-transferable and shall expire ten (10) days from
issuance hereof or as soon as the herein authorized volume is exhausted
whichever comes first.[4]
The Case

Before the Court is a petition for review[1] assailing the 5 June 1997 Decision[2] and 24
September 2004 Resolution[3] of the Court of Appeals in CA-G.R. CR No. 17534.
The Antecedent Facts
On behalf of Teachers Camp, Sergio Guzman filed with the Department of Environment
and Natural Resources (DENR) an application to cut down 14 dead Benguet pine trees
within the Teachers Camp in Baguio City. The trees, which had a total volume of 13.37
cubic meters, were to be used for the repairs of Teachers Camp.
On 19 May 1993, before the issuance of the permit, a team composed of members from
the Community Environment and Natural Resources Office (CENRO) and Michael
Cuteng (Cuteng), a forest ranger of the Forest Section of the Office of the City Architect
and Parks Superintendent of Baguio City, conducted an inspection of the trees to be cut.
Thereafter, Sabado T. Batcagan, Executive Director of the DENR, issued a permit
allowing the cutting of 14 trees under the following terms and conditions:
On 23 July 1993, Forest Rangers Ramil Windo, Moises Sobrepea, Daniel Salamo, Pablo
Guinawan, Antonio Abellera, and Forester Paul Apilis received information that pine
trees were being cut at Teachers Camp without proper authority. They proceeded to the
site where they found Ernesto Aquino (petitioner), a forest ranger from CENRO, and
Cuteng supervising the cutting of the trees. They also found sawyers Benedicto Santiago
(Santiago) and Mike Masing (Masing) on the site, together with Clemente Salinas
(Salinas) and Andrew Nacatab (Nacatab), who were also supervising the cutting of the
trees. The forest rangers found 23 tree stumps, out of which only 12 were covered by the
permit. The volume of the trees cut with permit was 13.58 cubic meters while the volume
of the trees cut without permit was 16.55 cubic meters. The market value of the trees cut
without permit was P182,447.20, and the forest charges were P11,833.25.
An Information for violation of Section 68 of Presidential Decree No. 705[5] (PD 705)
was filed against petitioner, Cuteng, Nacatab, Masing, and Santiago, as follows:
2 of 111 – Envi Law Part III Cases
That on or about the 23rd day of July, 1993, and subsequent thereto, in
the City of Baguio, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, conspiring, confederating
and mutually aiding one another, and without any authority, license or
permit, did then and there willfully, unlawfully and feloniously cut nine
(9) pine trees with a total volume and market price as P182,447.20
(Volume 16.55 M3 424 bd. ft./M3 and unit price P26.00 bd. ft.) and with
a total forest charge of P11,833.25 or having a total sum
of P194,280.45 at Teachers Camp, Baguio City, without the legal
documents as required under existing forest laws and regulations,
particularly the Department of Environment and Natural Resources
Circular No. 05, Series of 1989, in violation of the aforecited law. [6]
Masing alleged that he was not aware of the limitations on the permit as he was not given
a copy of the permit. Masing stated that he cut 10 pine trees under the supervision of
petitioner who claimed to be in possession of the necessary permit. He stated that three of
the trees were stumps about four or five feet high and were not fit for lumber. He stated
that while he was cutting trees, petitioner and Salinas were present.
Santiago testified that he cut trees under petitioners supervision. He stated that petitioner
was in possession of the permit. He stated that he cut 10 trees, six of which were cut into
lumber while two were stumps and two were rotten.
Salinas testified that Masing and Santiago were merely hired as sawyers and they merely
followed petitioners instructions.
Cuteng testified that he was part of the team that inspected the trees to be cut before the
permit was issued. He stated that the trees cut by Santiago were covered by the permit.
Nacatab testified that he only went to Teachers Camp on 13 July 1993 and he saw
Santiago and Masing cutting down the trees in petitioners presence.
Petitioner alleged that he was sent to supervise the cutting of trees at Teachers Camp. He
allegedly informed his superior, Paul Apilis, that he was not aware of the trees covered
by the permit. However, he still supervised the cutting of trees without procuring a copy
of the vicinity map used in the inspection of the trees to be cut. He claimed that he could
not prevent the overcutting of trees because he was just alone while Cuteng and Santiago
were accompanied by three other men.
The Decision of the Trial Court
In its 26 May 1994 Decision,[7] the Regional Trial Court of Baguio City, Branch 5 (trial
court), ruled as follows:
WHEREFORE, the Court finds and declares the accused ERNESTO
AQUINO y ESTIPULAR, MICHAEL CUTENG y LESCAO and
BENEDICTO SANTIAGO y DOCLES guilty beyond reasonable doubt
of the crime charged and hereby sentences EACH of them to suffer an
indeterminate penalty of SIX (6) YEARS of prision correccional, as
minimum, to TWENTY (20) YEARS of reclusion temporal, as
maximum; to indemnify, jointly and severally, the Government in the
amounts of P182,477.20 and P11,833.25, representing the market value
of and forest charges on the Benguet pine trees cut without permit; and
to pay their proportionate shares in the costs.
The chainsaw confiscated from the accused Santiago is hereby declared
forfeited in favor of the Government.
On the other hand, the accused ANDREW NACATAB y DODOY and
MIKE MASING y GANAS are acquitted on reasonable doubt, with
costs de oficio, and the cash bonds they deposited for their provisional
liberty in the amount of P7,500.00 each under O.R. Nos. 139605 and
139646, dated February 4, 1996 and February 23, 1994, respectively,
are ordered released to them upon proper receipt therefor.
SO ORDERED.[8]
The trial court ruled that the trees cut exceeded the allowed number of the trees
authorized to be cut. The trial court further ruled that the cutting of trees went beyond the
period stated in the permit.
Petitioner, Cuteng and Santiago appealed from the trial courts Decision.
The Decision of the Court of Appeals
In its 5 June 1997 Decision, the Court of Appeals modified the trial courts Decision as
follows:
WHEREFORE, the decision of the court a quo is MODIFIED. The
accused-appellants Benedicto Santiago and Michael Cuteng are hereby
acquitted on reasonable doubt. The appellant Ernesto Aquino is found
guilty, and is hereby sentenced to suffer the indeterminate penalty of
six (6) years and one (1) day of prision mayor as minimum, to fourteen
(14) years, eight (8) months, and one (1) day of reclusion temporal, as
maximum. The award of damages is deleted. No costs.
SO ORDERED.[9]
3 of 111 – Envi Law Part III Cases
The Court of Appeals ruled that as a forest guard or ranger of the CENRO, DENR,
petitioner had the duty to supervise the cutting of trees and to ensure that the sawyers
complied with the terms of the permit which only he possessed. The Court of Appeals
ruled that while it was Teachers Camp which hired the sawyers, petitioner had control
over their acts. The Court of Appeals rejected petitioners claim that he was restrained
from taking a bolder action by his fear of Santiago because petitioner could have
informed his superiors but he did not do so. The Court of Appeals further rejected
petitioners contention that the law contemplated cutting of trees without permit, while in
this case there was a permit for cutting down the trees. The Court of Appeals ruled that
the trees which were cut by the sawyers were not covered by the permit.
The Court of Appeals ruled that conspiracy was not sufficiently proven. As such, the
Court of Appeals found that the prosecution failed to prove Cutengs guilt beyond
reasonable doubt. The Court of Appeals likewise acquitted Santiago because he was only
following orders as to which trees to cut and he did not have a copy of the permit.
Petitioner filed a motion for reconsideration. In its 24 September 2004 Resolution, the
Court of Appeals denied the motion for lack of merit.
Hence, the petition before this Court.
The Issue
The only issue in this case is whether petitioner is guilty beyond reasonable doubt of
violation of Section 68 of PD 705.
The Ruling of this Court
The petition has merit.
The Solicitor General alleges that the petition should be denied because petitioner only
raises questions of facts and not questions of law. We do not agree.
A question of law arises when there is doubt as to what the law is on a certain state of
facts, while there is a question of fact when the doubt arises as to the truth or falsity of
the alleged facts.[10] For questions to be one of law, the same must not involve an
examination of the probative value of the evidence presented by the litigants. [11] The
resolution of the issue must rest solely on what the law provides on the given set of
circumstances.[12]
In this case, petitioner challenges his conviction under Section 68 of PD 705.
Section 68 of PD 705 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.
There are two distinct and separate offenses punished under Section 68 of PD 705, to wit:
(1) Cutting, gathering, collecting and removing timber or other
forest products from any forest land, or timber from alienable
or disposable public land, or from private land without any
authority; and
(2) Possession of timber or other forest products without the
legal documents required under existing forest laws and
regulations.[13]
The provision clearly punishes anyone who shall cut, gather, collect or 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. In this case, petitioner was
charged by CENRO to supervise the implementation of the permit. He was not the one
who cut, gathered, collected or removed the pine trees within the contemplation of
Section 68 of PD 705. He was not in possession of the cut trees because the lumber was
used by Teachers Camp for repairs. Petitioner could not likewise be convicted of
conspiracy to commit the offense because all his co-accused were acquitted of the
charges against them.
Petitioner may have been remiss in his duties when he failed to restrain the sawyers from
cutting trees more than what was covered by the permit. As the Court of Appeals ruled,
petitioner could have informed his superiors if he was really intimidated by Santiago. If
at all, this could only make petitioner administratively liable for his acts. It is not enough
to convict him under Section 68 of PD 705.
Neither could petitioner be liable under the last paragraph of Section 68 of PD 705 as he
is not an officer of a partnership, association, or corporation who ordered the cutting,
gathering, or collection, or is in possession of the pine trees.
4 of 111 – Envi Law Part III Cases

WHEREFORE, we GRANT the petition. We SET ASIDE the 5 June 1997 Decision
and 24 September 2004 Resolution of the Court of Appeals in CA-G.R. CR No.
17534.Petitioner Ernesto Aquino is ACQUITTED of the charge of violation of Section
68 of Presidential Decree No. 705. Costs de officio.

SO ORDERED.
5 of 111 – Envi Law Part III Cases
EN BANC
[G.R. No. 104988. June 18, 1996]
MUSTANG LUMBER, INC., petitioner, vs. HON. COURT OF APPEALS, HON.
FULGENCIO S. FACTORAN, JR., Secretary, Department of Environment
and Natural Resources (DENR), and ATTY. VINCENT A. ROBLES, Chief,
Special Actions and Investigation Division, DENR, respondents.
[G.R. No. 106424. June 18, 1996]
PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. TERESITA DIZON-
CAPULONG, in her capacity as the Presiding Judge, Regional Trial Court
National Capital Judicial Region, Branch 172, Valenzuela, Metro Manila,
and RI CHUY PO, respondents.
[G.R. No. 123784. June 18, 1996]
MUSTANG LUMBER, INC., petitioner, vs. HON. COURT OF APPEALS, ATTY.
VINCENT A. ROBLES, Chief, Special Actions and Investigation Division,
Department of Environment and Natural Resources (DENR), ATTY.
NESTOR V. GAPUSAN, TIRSO P. PARIAN, JR., and FELIPE H.
CALLORINA, JR., respondents.
DECISION
DAVIDE, JR., J.:
The first and third cases, G.R. No. 104988 and G.R. No. 123784, were originally
assigned to the Second and Third Divisions of the Court, respectively. They were
subsequently consolidated with the second, a case of the Court en banc.
Petitioner, a domestic corporation with principal office at Nos. 1350-1352 Juan
Luna Street, Tondo, Manila, and with a lumberyard at Fortune Street, Fortune Village,
Paseo de Blas, Valenzuela, Metro Manila, was duly registered as a lumber dealer with the
Bureau of Forest Development (BFD) under Certificate of Registration No. NRD-4-
092590-0469. Its permit as such was to expire on 25 September 1990.
Respondent Secretary Fulgencio S. Factoran, Jr., and respondent Atty. Vincent A.
Robles were, during all the time material to these cases, the Secretary of the Department
of Environment and Natural Resources (DENR) and the Chief of the Special Actions and
Investigation Division (SAID) of the DENR, respectively.
The material operative facts are as follows:
On 1 April 1990, acting on an information that a huge stockpile of narra flitches,
shorts, and slabs were seen inside the lumberyard of the petitioner in Valenzuela, Metro
Manila, the SAID organized a team of foresters and policemen and sent it to conduct
surveillance at the said lumberyard. In the course thereof, the team members saw coming
out from the lumberyard the petitioner's truck, with Plate No. CCK-322, loaded with
lauan and almaciga lumber of assorted sizes and dimensions. Since the driver could not
produce the required invoices and transport documents, the team seized the truck together
with its cargo and impounded them at the DENR compound at Visayas Avenue, Quezon
City.[1] The team was not able to gain entry into the premises because of the refusal of the
owner.[2]
On 3 April 1990, the team was able to secure a search warrant from Executive
Judge Adriano R. Osorio of the Regional Trial Court (RTC) of Valenzuela, Metro
Manila. By virtue thereof, the team seized on that date from the petitioners lumberyard
four truckloads of narra shorts, trimmings, and slabs; a negligible number of narra
lumber; and approximately 200,000 board feet of lumber and shorts of various species
including almaciga and supa.[3]
On 4 April 1990, the team returned to the premises of the petitioner 's lumberyard in
Valenzuela and placed under administrative seizure the remaining stockpile of almaciga,
supa, and lauan lumber with a total volume of 311,000 board feet because the petitioner
failed to produce upon demand the corresponding certificate of lumber origin, auxiliary
invoices, tally sheets, and delivery receipts from the source of the invoices covering the
lumber to prove the legitimacy of their source and origin. [4]
Parenthetically, it may be stated that under an administrative seizure the owner
retains the physical possession of the seized articles. Only an inventory of the articles is
taken and signed by the owner or his representative. The owner is prohibited from
disposing them until further orders. [5]
On 10 April 1990, counsel for the petitioner sent a letter to Robles requesting an
extension of fifteen days from 14 April 1990 to produce the required documents covering
the seized articles because some of them, particularly the certificate of lumber origin,
were allegedly in the Province of Quirino. Robles denied the motion on the ground that
6 of 111 – Envi Law Part III Cases
the documents being required from the petitioner must accompany the lumber or forest
products placed under seizure.[6]
On 11 April 1990, Robles submitted his memorandum-report recommending to
Secretary Factoran the following:
1. Suspension and subsequent cancellation of the lumber Dealer's Permit of
Mustang Lumber, Inc. for operating an unregistered lumberyard and resaw
mill and possession of Almaciga Lumber (a banned specie) without the
required documents;
2. Confiscation of the lumber seized at the Mustang Lumberyard including the
truck with Plate No. CCK-322 and the lumber loaded herein [sic] now at
the DENR compound in the event its owner fails to submit documents
showing legitimacy of the source of said lumber within ten days from date
of seizure;
3. Filing of criminal charges against Mr. Ri Chuy Po, owner of Mustang
Lumber Inc. and Mr. Ruiz, or if the circumstances warrant for illegal
possession of narra and almaciga lumber and shorts if and when
recommendation no. 2 pushes through;
4. Confiscation of Trucks with Plate No. CCS-639 and CDV-458 as well as
the lumber loaded therein for transport lumber using recycled documents. [7]
On 23 April 1990, Secretary Factoran issued an order suspending immediately the
petitioner's lumber-dealer's permit No. NRD-4-092590-0469 and directing the petitioner
to explain in writing within fifteen days why its lumber-dealer's permit should not be
cancelled.
On the same date, counsel for the petitioner sent another letter to Robles informing
the latter that the petitioner had already secured the required documents and was ready to
submit them. None, however, was submitted.[8]
On 3 May 1990, Secretary Factoran issued another order wherein, after reciting the
events which took place on 1 April and 3 April 1990, he ordered CONFISCATED in
favor of the government to be disposed of in accordance with law the approximately
311,000 board feet of lauan, supa, and almaciga lumber, shorts, and sticks found inside
the petitioner's lumberyard.[9]
On 11 July 1990, the petitioner filed with the RTC of Manila a petition
for certiorari and prohibition with a prayer for a restraining order or preliminary
injunction against Secretary Fulgencio S. Factoran, Jr., and Atty. Vincent A. Robles. The
case (hereinafter, the FIRST CIVIL CASE) was docketed as Civil Case No. 90-53648 and
assigned to Branch 35 o the said court. The petitioner questioned therein (a) the seizure
on 1 April 1990, without any search and seizure order issued by a judge, of its truck with
Plate No. CCK-322 and its cargo of assorted lumber consisting of apitong, tanguile, and
lauan of different sizes and dimensions with a total value of P38,000.00; and (b) the
orders of Secretary Factoran of 23 April 1990 for lack of prior notice and hearing and of
3 May 1990 for violation of Section 2, Article III of the Constitution.
On 17 September 1990, in response to reports that violations of P.D. No. 705 (The
Revised Forestry Code of the Philippines), as amended, were committed and acting upon
instruction of Robles and under Special Order No. 897, series of 1990, a team of DENR
agents went to the business premises of the petitioner located at No. 1352 Juan Luna
Street, Tondo, Manila.The team caught the petitioner operating as a lumber dealer
although its lumber-dealer's permit had already been suspended on 23 April 1990. Since
the gate of the petitioner's lumberyard was open, the team went inside and saw an owner-
type jeep with a trailer loaded with lumber. Upon investigation, the team was informed
that the lumber loaded on the trailer was to be delivered to the petitioner's customer. It
also came upon the sales invoice covering the transaction. The members of the team then
introduced themselves to the caretaker, one Ms. Chua, who turned out to be the wife of
the petitioner's president and general manager, Mr. Ri Chuy Po, who was then out of
town. The team's photographer was able to take photographs of the stockpiles of lumber
including newly cut ones, fresh dust around sawing or cutting machineries and
equipment, and the transport vehicles loaded with lumber. The team thereupon effected a
constructive seizure of approximately 20,000 board feet of lauan lumber in assorted sizes
stockpiled in the premises by issuing a receipt therefor. [10]
As a consequence of this 17 September 1990 incident, the petitioner filed with the
RTC of Manila a petition for certiorari and prohibition. The case (hereinafter,
the SECOND CIVIL CASE) was docketed as Civil Case No. 90-54610 and assigned to
Branch 24 of the said court.
In the meantime, Robles filed with the Department of Justice (DOJ) a complaint
against the petitioner's president and general manager, Ri Chuy Po, for violation of
Section 68 of P.D. No. 705, as amended by E.O. No. 277. After appropriate preliminary
investigation, the investigating prosecutor, Claro Arellano, handed down a
resolution[11] whose dispositive portion reads:
WHEREFORE, premises considered, it is hereby recommended that an information be
filed against respondent Ri Chuy Po for illegal possession of approximately 200,000 bd.
ft. of lumber consisting of almaciga and supa and for illegal shipment of almaciga and
lauan in violation of Sec. 68 of PD 705 as amended by E.O. 277, series of 1987.
It is further recommended that the 30,000 bd. ft. of narra shorts, trimmings and slabs
covered by legal documents be released to the rightful owner, Malupa. [12]
This resolution was approved by Undersecretary of Justice Silvestre H. Bello, III,
who served as Chairman of the Task Force on Illegal Logging. [13]
On the basis of that resolution, an information was filed on 5 June 1991 by the DOJ
with Branch 172 of the RTC of Valenzuela, charging Ri Chuy Po with the violation of
Section 68 of P.D. No. 705, as amended, which was docketed as Criminal Case No. 324-
7 of 111 – Envi Law Part III Cases
V-91 (hereinafter, the CRIMINAL CASE). The accusatory portion of the information
reads as follows:
That on or about the 3rd day of April 1990, or prior to or subsequent thereto, within
the premises and vicinity of Mustang Lumber, Inc. in Fortune Village, Valenzuela, Metro
Manila, and within the jurisdiction of this Honorable Court, the above-named accused,
did then and there wilfully, feloniously and unlawfully, have in his possession truckloads
of almaciga and lauan and approximately 200,000 bd. ft. of lumber and shorts of various
species including almaciga and supa, without the legal documents as required under
existing forest laws and regulations.[14]
On 7 June 1991, Branch 35 of the RTC of Manila rendered its decision[15] in the
FIRST CIVIL CASE, the dispositive portion of which reads:
WHEREFORE, judgment in this case is rendered as follows:
1. The Order of Respondent Secretary of the DENR, the Honorable Fulgencio
S. Factoran, Jr., dated 3 May 1990 ordering the confiscation in favor of the
Government the approximately 311,000 board feet of lauan, supa, and
almaciga lumber, shorts and sticks, found inside and seized from the
lumberyard of the petitioner at Fortune Drive, Fortune Village, Paseo de
Blas, Valenzuela, Metro Manila, on April 4, 1990 (Exhibit 10), is hereby
set aside and vacated, and instead the respondents are required to report
and bring to the Hon. Adriano Osorio, Executive Judge, Regional Trial
Court, NCJR, Valenzuela, Metro Manila, the said 311,000 board feet of
Lauan, supa and almaciga Lumber, shorts and sticks, to be dealt with as
directed by law;
2. The respondents are required to initiate and prosecute the appropriate action
before the proper court regarding the lauan and almaciga lumber of
assorted sizes and dimensions loaded in petitioner's truck bearing Plate No.
CCK-322 which were seized on April 1, 1990;
3. The Writ of Preliminary Injunction issued by the Court on August 2, 1990
shall be rendered functus oficio upon compliance by the respondents with
paragraphs 1 and 2 of this judgment;
4. Action on the prayer of the petitioner that the lauan, supa and almaciga
lumber, shorts and sticks mentioned above in paragraphs 1 and 2 of this
judgment be returned to said petitioner, is withheld in this case until after
the proper court has taken cognizance and determined how those lumber,
shorts and sticks should be disposed of; and
5. The petitioner is ordered to pay the costs.
SO ORDERED.
In resolving the said case, the trial court held that the warrantless search and seizure
on 1 April 1990 of the petitioner's truck, which was moving out from the petitioner's
lumberyard in Valenzuela, Metro Manila, loaded with large volumes of lumber without
covering document showing the legitimacy of its source or origin did not offend the
constitutional mandate that search and seizure must be supported by a valid warrant. The
situation fell under one of the settled and accepted exceptions where warrantless search
and seizure is justified, viz., a search of a moving vehicle.[16] As to the seizure of a large
volume of almaciga, supa, and lauan lumber and shorts effected on 4 April 1990, the trial
court ruled that the said seizure was a continuation of that made the previous day and was
still pursuant to or by virtue of the search warrant issued by Executive Judge Osorio
whose validity the petitioner did not even question. [17] And, although the search warrant
did not specifically mention almaciga, supa, and lauan lumber and shorts, their seizure
was valid because it is settled that the executing officer is not required to ignore
contrabands observed during the conduct of the search. [18]
The trial court, however, set aside Secretary Factoran's order of 3 May 1990
ordering the confiscation of the seized articles in favor of the Government for the reason
that since the articles were seized pursuant to the search warrant issued by Executive
Judge Osorio they should have been returned to him in compliance with the directive in
the warrant.
As to the propriety of the 23 April 1990 order of Secretary Factoran, the trial court
ruled that the same had been rendered moot and academic by the expiration of the
petitioner's lumber-dealer's permit on 25 September 1990, a fact the petitioner admitted in
its memorandum.
The petitioner forthwith appealed from the decision in the FIRST CIVIL CASE to
the Court of Appeals, which docketed the appeal as CA-G.R. SP No. 25510.
On 7 July 1991, accused Ri Chuy Po filed in the CRIMINAL CASE a Motion to
Quash and/or to Suspend Proceedings based on the following grounds: (a) the
information does not charge an offense, for possession of lumber, as opposed to timber, is
not penalized in Section 68 of P.D. No. 705, as amended, and even
granting arguendo that lumber falls within the purview of the said section, the same may
not be used in evidence against him for they were taken by virtue of an illegal seizure;
and (b) Civil Case No. 90-53648 of Branch 35 of the RTC of Manila, the FIRST CIVIL
CASE, then pending before the Court of Appeals, which involves the legality of the
seizure, raises a prejudicial question. [19]
The prosecution opposed the motion alleging that lumber is included in Section 68
of P.D. No. 705, as amended, and possession thereof without the required legal
documents is penalized therein. It referred to Section 3.2 of DENR Administrative Order
No. 19, series of 1989, for the definitions of timber and lumber, and then argued that
exclusion of lumber from Section 68 would defeat the very purpose of the law, i.e., to
minimize, if not halt, illegal logging that has resulted in the rapid denudation of our forest
resources.[20]
8 of 111 – Envi Law Part III Cases
In her order of 16 August 1991 in the CRIMINAL CASE, [21] respondent Judge
Teresita Dizon-Capulong granted the motion to quash and dismissed the case on the
ground that "possession of lumber without the legal documents required by forest laws
and regulations is not a crime."[22]
Its motion for reconsideration having been denied in the order of 18 October
1991,[23] the People filed a petition for certiorari with this Court in G.R. No. 106424,
wherein it contends that the respondent Judge acted with grave abuse of discretion in
granting the motion to quash and in dismissing the case.
On 29 November 1991, the Court of Appeals rendered a decision[24] in CA-G.R. SP
No. 25510 dismissing for lack of merit the petitioner's appeal from the decision in the
FIRST CIVIL CASE and affirming the trial court's rulings on the issues raised. As to the
claim that the truck was not carrying contraband articles since there is no law punishing
the possession of lumber, and that lumber is not timber whose possession without the
required legal documents is unlawful under P.D. No. 705, as amended, the Court of
Appeals held:
This undue emphasis on lumber or the commercial nature of the forest product
involved has always been foisted by those who claim to be engaged in the legitimate
business of lumber dealership. But what is important to consider is that when appellant
was required to present the valid documents showing its acquisition and lawful
possession of the lumber in question, it failed to present any despite the period of
extension granted to it.[25]
The petitioner's motion to reconsider the said decision was denied by the Court of
Appeals in its resolution of 3 March 1992. [26] Hence, the petitioner came to this Court by
way of a petition for review on certiorari in G.R. No. 104988, which was filed on 2 May
1992.[27]
On 24 September 1992, Branch 24 of the RTC of Manila handed down a decision in
the SECOND CIVIL CASE dismissing the petition for certiorari and prohibition because
(a) the petitioner did not exhaust administrative remedies; (b) when the seizure was made
on 17 September 1990 the petitioner could not lawfully sell lumber, as its license was still
under suspension; (c) the seizure was valid under Section 68-A of P.D. No. 705, as
amended; and (d) the seizure was justified as a warrantless search and seizure under
Section 80 of P.D. No. 705, as amended.
The petitioner appealed from the decision to the Court of Appeals, which docketed
the appeal as CA-G.R. SP No. 33778.
In its decision[28] of 31 July 1995, the Court of Appeals dismissed the petitioner's
appeal in CA-G.R. SP No. 33778 for lack of merit and sustained the grounds relied upon
by the trial court in dismissing the SECOND CIVIL CASE. Relying on the definition of
"lumber" by Webster, viz., "timber or logs, especially after being prepared for the
market," and by the Random House Dictionary of the English Language, viz., "wood, esp.
when suitable or adapted for various building purposes," the respondent Court held that
since wood is included in the definition of forest product in Section 3(q) of P.D. No. 705,
as amended, lumber is necessarily included in Section 68 under the term forest product.
The Court of Appeals further emphasized that a forest officer or employee can seize
the forest product involved in a violation of Section 68 of P.D. No. 705 pursuant to
Section 80 thereof, as amended by P.D. No. 1775, which provides in part as follows:
SEC. 80. Arrest, Institution of Criminal Actions. A forest officer or employee of the
Bureau or any personnel of the Philippine Constabulary/Integrated National Police shall
arrest even without warrant any person who has committed or is committing in his
presence any of the offenses defined in this chapter. He shall also seize and confiscate, in
favor of the Government, the tools and equipment used in committing the offense, or the
forest products cut, gathered or taken by the offender in the process of committing the
offense.
Among the offenses punished in the chapter referred to in said Section 80 are the
cutting, gathering, collection, or removal of timber or other forest products or possession
of timber or other forest products without the required legal documents.
Its motion to reconsider the decision having been denied by the Court of Appeals in
the resolution of 6 February 1996, the petitioner filed with this Court on 27 February
1996 a petition for review on certiorari in G.R. No. 123784.
We shall now resolve these three cases starting with G.R. 106424 with which the
other two were consolidated.
G.R. No. 106424
The petitioner had moved to quash the information in Criminal Case No. 324-V-91
on the ground that it does not charge an offense. Respondent Judge Dizon-Capulong
granted the motion reasoning that the subject matter of the information in the
CRIMINAL CASE is LUMBER, which is neither "timber" nor "other forest product"
under Section 68 of P.D. No. 705, as amended, and hence, possession thereof without the
required legal documents is not prohibited and penalized under the said section.
Under paragraph (a), Section 3, Rule 117 of the Rules of Court, an information may
be quashed on the ground that the facts alleged therein do not constitute an offense. It has
been said that "the test for the correctness of this ground is the sufficiency of the
averments in the information, that is, whether the facts alleged, if hypothetically
admitted, constitute the elements of the offense, [29] and matters aliunde will not be
considered." Anent the sufficiency of the information, Section 6, Rule 110 of the Rules of
Court requires, inter alia, that the information state the acts or omissions complained of
as constituting the offense.
9 of 111 – Envi Law Part III Cases
Respondent Ri Chuy Po is charged with the violation of Section 68 of P.D. No. 705,
as amended by E.O. No. 277, which provides:
SEC. 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.
Punished then in this section are (1) the cutting, gathering, collection, or removal of
timber or other forest products from the places therein mentioned without any authority;
and (b) possession of timber or other forest products without the legal documents as
required under existing forest laws and regulations.
Indeed, the word lumber does not appear in Section 68. But conceding ex gratia that
this omission amounts to an exclusion of lumber from the section's coverage, do the facts
averred in the information in the CRIMINAL CASE validly charge a violation of the said
section?
A cursory reading of the information readily leads us to an infallible conclusion
that lumber is not solely its subject matter. It is evident therefrom that what are alleged to
be in the possession of the private respondent, without the required legal documents, are
truckloads of
(1) almaciga and lauan; and
(2) approximately 200,000 bd. ft. of lumber and shorts of various species
including almaciga and supa.
The almaciga and lauan specifically mentioned in no. (1) are not described as lumber.
They cannot refer to the lumber in no. (2) because they are separated by the words
approximately 200,000 bd. ft. with the conjunction and, and not with the preposition of.
They must then be raw forest products or, more specifically, timbers under Section 3(q)
of P.D. No. 705, as amended, which reads:
SEC. 3. Definitions.
xxx xxx xxx
(q) Forest product means timber, pulpwood, firewood, bark, tree top, resin, gum, wood,
oil, honey, beeswax, nipa, rattan, or other forest growth such as grass, shrub, and
flowering plant, the associated water, fish, game, scenic, historical, recreational and
geological resources in forest lands.
It follows then that lumber is only one of the items covered by the information. The
public and the private respondents obviously miscomprehended the averments in the
information.Accordingly, even if lumber is not included in Section 68, the other items
therein as noted above fall within the ambit of the said section, and as to them, the
information validly charges an offense.
Our respected brother, Mr. Justice Jose C. Vitug, suggests in his dissenting opinion
that this Court go beyond the four corners of the information for enlightenment as to
whether the information exclusively refers to lumber. With the aid of the pleadings and
the annexes thereto, he arrives at the conclusion that only lumber has been envisioned in
the indictment.
The majority is unable to subscribe to his view. First, his proposition violates the
rule that only the facts alleged in the information vis-a-vis the law violated must be
considered in determining whether an information charges an offense.
Second, the pleadings and annexes he resorted to are insufficient to justify his
conclusion. On the contrary, the Joint Affidavit of Melencio Jalova, Jr., and Araman
Belleng, which is one of the annexes he referred to,[30] cannot lead one to infer that what
the team seized was all lumber. Paragraph 8 thereof expressly states:
8. That when inside the compound, the team found approximately four (4)
truckloads of narra shorts, trimmings and slabs and a negligible amount of narra lumber,
and approximately 200,000 bd. ft. of lumber and shorts of various species including
almaciga and supa which are classified as prohibited wood species. (Italics supplied)
In the same vein, the dispositive portion of the resolution[31] of the investigating
prosecutor, which served as the basis for the filing of the information, does not limit itself
to lumber; thus:
WHEREFORE, premises considered, it is hereby recommended that an information be
filed against respondent Ri Chuy Po for illegal possession of 200,000 bd. ft. of lumber
consisting of almaciga and supa and for illegal shipment of almaciga and lauan in
violation of Sec. 63 of PD 705 as amended by E.O. 277, series of 1987. (Italics supplied)
The foregoing disquisitions should not, in any manner, be construed as an
affirmance of the respondent Judge's conclusion that lumber is excluded from the
coverage of Section 68 of P.D. No. 705, as amended, and thus possession thereof without
10 of 111 – Envi Law Part III Cases
the required legal documents is not a crime. On the contrary, this Court rules that such
possession is penalized in the said section because lumber is included in the term timber.
The Revised Forestry Code contains no definition of either timber or lumber. While
the former is included in forest products as defined in paragraph (q) of Section 3, the
latter is found in paragraph (aa) of the same section in the definition of Processing plant;
which reads:
(aa) Processing plant is any mechanical set-up, machine or combination of machine used
for the processing of logs and other forest raw materials into lumber, veneer, plywood,
wallboard, block-board, paper board, pulp, paper or other finished wood products.
This simply means that lumber is a processed log or processed forest raw
material. Clearly, the Code uses the term lumber in its ordinary or common usage. In the
1993 copyright edition of Webster's Third New International Dictionary, lumber is
defined, inter alia, as timber or logs after being prepared for the market. [32] Simply put,
lumber is a processed log or timber.
It is settled that in the absence of legislative intent to the contrary, words and
phrases used in a statute should be given their plain, ordinary, and common usage
meaning.[33] And insofar as possession of timber without the required legal documents is
concerned, Section 68 of P.D. No. 705, as amended, makes no distinction between raw or
processed timber. Neither should we. Ubi lex non distanguit nec nos distinguere
debemus.
Indisputably, respondent Judge Teresita Dizon-Capulong of Branch 172 of the RTC
of Valenzuela, Metro Manila, committed grave abuse of discretion in granting the motion
to quash the information in the CRIMINAL CASE and in dismissing the said case.
G.R. No. 104988
We find this petition to be without merit. The petitioner has miserably failed to
show that the Court of Appeals committed any reversible error in its assailed decision of
29 November 1991.
It was duly established that on 1 April 1990, the petitioner's truck with Plate No.
CCK-322 was coming out from the petitioner's lumberyard loaded with lauan and
almaciga lumber of different sizes and dimensions which were not accompanied with the
required invoices and transport documents. The seizure of such truck and its cargo was a
valid exercise of the power vested upon a forest officer or employee by Section 80 of
P.D. No. 705, as amended by P.D. No. 1775. Then, too, as correctly held by the trial
court and the Court of Appeals in the FIRST CIVIL CASE, the search was conducted on
a moving vehicle. Such a search could be lawfully conducted without a search warrant.
Search of a moving vehicle is one of the five doctrinally accepted exceptions to the
constitutional mandate[34] that no search or seizure shall be made except by virtue of a
warrant issued by a judge after personally determining the existence of probable
cause. The other exceptions are (1) search as an incident to a lawful arrest, (2) seizure of
evidence in plain view, (3) customs searches, and (4) consented warrantless search. [35]
We also affirm the rulings of both the trial court and the Court of Appeals that the
search on 4 April 1990 was a continuation of the search on 3 April 1990 done under and
by virtue of the search warrant issued on 3 April 1990 by Executive Judge Osorio. Under
Section 9, Rule 126 of the Rules of Court, a search warrant has a lifetime of ten
days. Hence, it could be served at any time within the said period, and if its object or
purpose cannot be accomplished in one day, the same may be continued the following
day or days until completed. Thus, when the search under a warrant on one day was
interrupted, it may be continued under the same warrant the following day, provided it is
still within the ten-day period.[36]
As to the final plea of the petitioner that the search was illegal because possession
of lumber without the required legal documents is not illegal under Section 68 of P.D.
No. 705, as amended, since lumber is neither specified therein nor included in the
term forest product, the same hardly merits further discussion in view of our ruling in
G.R. No. 106424.
G.R. No. 123784
The allegations and arguments set forth in the petition in this case palpably fail to
show prima facie that a reversible error has been committed by the Court of Appeals in
its challenged decision of 31 July 1995 and resolution of 6 February 1996 in CA-G.R. SP
No. 33778. We must, forthwith, deny it for utter want of merit. There is no need to
require the respondents to comment on the petition.
The Court of Appeals correctly dismissed the petitioner's appeal from the judgment
of the trial court in the SECOND CIVIL CASE. The petitioner never disputed the fact
that its lumber-dealer's license or permit had been suspended by Secretary Factoran on 23
April 1990. The suspension was never lifted, and since the license had only a lifetime of
up to 25 September 1990, the petitioner has absolutely no right to possess, sell, or
otherwise dispose of lumber. Accordingly, Secretary Factoran or his authorized
representative had the authority to seize the lumber pursuant to Section 68-A of P.D. No.
705, as amended, which provides as follows:
Section 68-A. Administrative Authority of the Department Head or his Duly Authorized
Representative to Order Confiscation. In all cases of violations of this Code or other
forest laws, rules and regulations, the Department Head or his duly authorized
11 of 111 – Envi Law Part III Cases

representative may order the confiscation of any forest products illegally cut, gathered,
removed, or possessed or abandoned. . . .

The petitioner's insistence that possession or sale of lumber is not penalized must
also fail in view of our disquisition and ruling on the same issue in G.R. No.
106424. Besides, the issue is totally irrelevant in the SECOND CIVIL CASE which
involves administrative seizure as a consequence of the violation of the suspension of the
petitioner's license as lumber dealer.
All told then, G.R. No. 104988 and G.R. No. 123784 are nothing more than rituals
to cover up blatant violations of the Revised Forestry Code of the Philippines (P.D. No.
705), as amended. They are presumably trifling attempts to block the serious efforts of
the DENR to enforce the decree, efforts which deserve the commendation of the public in
light of the urgent need to take firm and decisive action against despoilers of our forests
whose continuous destruction only ensures to the generations to come, if not the present,
an inheritance of parched earth incapable of sustaining life. The Government must not
tire in its vigilance to protect the environment by prosecuting without fear or favor any
person who dares to violate our laws for the utilization and protection of our forests.
WHEREFORE, judgment is hereby rendered
1. (a) GRANTING the petition in G.R. No. 106424; (b) SETTING ASIDE and
ANNULLING, for having been rendered with grave abuse of discretion,
the challenged orders of 16 August 1991 and 18 October 1991 of
respondent Judge Teresita Dizon-Capulong, Branch 172, Regional Trial
Court of Valenzuela, Metro Manila, in Criminal Case No. 324-V-91,
entitled People of the Philippines vs. Ri Chuy Po; (c) REINSTATING the
information in the said criminal case; and (d) DIRECTING the respondent
Judge on her successor to hear and decide the case with purposeful
dispatch; and
2. DENYING the petitions in G.R. No. 104988 and in G. R. No. 123784 for
utter failure of the petitioner to show that the respondent Court of Appeals
committed any reversible error in the challenged decisions of 29 November
1991 in CA-G.R. SP No. 25510 in the FIRST CIVIL CASE and of 31 July
1995 in CA-G.R. SP No. 33778 in the SECOND CIVIL CASE.
Costs against the petitioner in each of these three cases.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Romero, Bellosillo, Melo, Puno, Kapunan,
Mendoza, Francisco, Hermosisima, Jr., Panganiban, and Torres, Jr., JJ., concur.
12 of 111 – Envi Law Part III Cases
FIRST DIVISION
[G.R. No. 115507. May 19, 1998]
ALEJANDRO TAN, ISMAEL RAMILO and FRED MORENO, petitioners, vs. THE
PEOPLE OF THE PHILIPPINES and THE COURT OF
APPEALS, respondents.
DECISION
PANGANIBAN, J.:
In denying this petition, the Court reiterates that the gathering, collection and/or
possession, without license, of lumber, which is considered timber or forest product, are
prohibited and penalized under the Forestry Reform Code, as amended.
The Case
In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioners seek to set aside the Decision[1] of the Court of Appeals[2] in CA-GR No. CR-
12815 promulgated on July 30, 1993, and its Resolution[3] promulgated on April 28,
1994. The assailed Decision affirmed the judgment [4] of the Regional Trial Court of
Romblon, Branch 81,[5] which, in the complaint against petitioners for violation of
Section 68, PD 705 (Forestry Reform Code) as amended, disposed as follows:
WHEREFORE, this Court finds:
a) the accused ALEJANDRO TAN, ISMAEL RAMILO and FRED MORENO GUILTY
beyond reasonable doubt of the crime of illegal possession of lumber under the
Information, dated March 16, 1990, under Section 68, P.D. No. 705, as amended by
Executive Order No. 277, and sentences each of them to an indeterminate sentence of
SIX (6) MONTHS, as minimum, to FOUR (4) YEARS and TWO (2) MONTHS, as
maximum, with the accessory penalties of the law, and to pay the costs, and
b) the accused ALEJANDRO TAN, ISMAEL RAMILO and CRISPIN CABUDOL
GUILTY beyond reasonable doubt of the crime of illegal possession of lumber under the
Information, dated March 16, 1990, under Section 68, P.D. No. 705, as amended by
Executive Order No. 277, and sentences each of them to an indeterminate sentence of
SIX (6) MONTHS, as minimum, to FOUR (4) YEARS and TWO (2) MONTHS, as
maximum, with the accessory penalties of the law, and to pay the costs.
The two (2) terms of imprisonment of each of the accused shall be served successively
under Article 70, RPC.
The preventive imprisonment which any of the accused may have suffered is credited in
his favor to its full extent.
The Court further orders the confiscation of the lumber described in the aforesaid
Informations in favor of the government.
SO ORDERED.
The Facts
On October 26, 1989, about 6:30 p.m., in the town proper of Cajidiocan, Sibuyan
Island, Romblon, Forest Guards Joseph Panadero and Eduardo Rabino intercepted a
dump truck loaded with narra and white lauan lumber. The truck was driven by
Petitioner Fred Moreno, an employee of A & E Construction. Again, about 8:00 p.m. on
October 30, 1989, this time in Barangay Cambajao, Forest Guards Panadero and Rabino
apprehended another dump truck with Plate No. DEK-646 loaded
with tanguile lumber. Said truck was driven by Crispin Cabudol, also an employee of A
& E Construction. Both motor vehicles, as well as the construction firm, were owned by
Petitioner Alejandro Tan. In both instances, no documents showing legal possession of
the lumber were, upon demand, presented to the forest guards; thus, the pieces of lumber
were confiscated.
On March 16, 1990, Tan and Moreno, together with Ismael Ramilo, caretaker and
timekeeper of A & E Construction, were charged by First Assistant Provincial Prosecutor
Felix R. Rocero with violation of Section 68, [6] PD No. 705, as amended by EO No. 277,
in an Information[7] which reads:
That on or about the 26th day of October, 1989, at around 6:30 oclock in the evening, in
the Poblacion, municipality of Cajidiocan, province of Romblon, Philippines, and within
the jurisdiction of this Honorable Court, the said accused, conspiring, confederating and
mutually helping one another, with intent of gain and without the legal documents as
required under existing forest laws and regulations, did then and there willfully,
unlawfully and feloniously have in their possession and under their custody and control
13 pieces narra lumber about 171 board feet and 41 pieces tanguile lumber about 834
13 of 111 – Envi Law Part III Cases
board feet valued at P8,724.00, Philippine currency, to the damage and prejudice of the
government in the aforestated amount.
In another Information,[8] Tan and Ramilo, together with Crispin Cabudol, were also
charged for the same violation in connection with the October 30, 1989 incident.
On April 26, 1990, all the accused, assisted by counsel, were arraigned on the basis
of the aforementioned Informations; each pleaded not guilty. [9] The cases were thence
jointly tried, pursuant to Section 14, Rule 119 of the Rules of Court.[10]
During the trial, the defense did not contest the above factual circumstances except
to deny that the forest guards demanded, on either of the two occasions, papers or
documents showing legal possession of the lumber. Additionally, Prisco Marin, who
claimed to have been the officer-in-charge (OIC) of the Bureau of Forest Development of
Sibuyan, testified that the seized pieces of lumber were bought by Tans Cajidiocan
Trading, one of the licensed lumber dealers in the island, from Matzhou Development
Corporation (Matzhou) which thus delivered to the former Auxiliary Invoice No.
763850[11] dated March 19, 1987 issued by the Bureau of Internal Revenue office in
Romblon. According to Marin, the director of forestry had granted Matzhou a Tree
Recovery Permit covering the entire island of Sibuyan. He added that he had inspected
the lumber in question in the compound of A & E Construction or Cajidiocan Trading,
where he was shown the auxiliary invoice covering the subject. [12]
Ruling of the Trial Court
The trial court brushed aside the version of the defense and ruled that the
confiscated pieces of lumber which were admittedly owned by Accused Tan were not
legitimate deliveries but aborted nocturnal haulings. It convicted all the accused as
charged for their failure to comply with the Forestry Reform Code, which requires the
following legal documents: (1) an auxiliary invoice, (2) a certificate of origin, (3) a sales
invoice, (4) scale/tally sheets and (5) a lumber dealer permit.
Ruling of Respondent Court of Appeals
On appeal, the accused assigned to the trial court these ten errors: (1) holding them
liable under Section 68 of EO 277; (2) ruling that their possession of the lumber were
unauthorized or illegal; (3) retroactively applying E.O. 277; (4) ruling that the accused
did not have the necessary documents to make their possession legal; (5) convicting them
despite the absence of the corpus delicti; (6) admitting in evidence the alleged seizure
receipts or, assuming their admissibility, considering them as evidence of corpus
delicti; (7) finding that the deliveries were aborted nocturnal haulings; (8) convicting
Alejandro Tan on the ground of conspiracy; (9) ruling that the guilt of the accused was
proved beyond reasonable doubt; and (10) sustaining the constitutionality of EO 277. [13]
As regards the first assigned error, the Court of Appeals held petitioners artful
distinction between timber and lumber to be fallacious and utterly unmeritorious. It
thereby upheld the solicitor generals manifestation that forest products include wood
which is defined by Websters Dictionary as the hard fibrous substance beneath the back
of trees and shrubs. Respondent Court succinctly ruled that to construe sawn lumber as
not covered by sawn timber would defeat the evident intent and purpose of the law, for
what would prevent an illegal logger [from bringing] with him a portable saw and having
the timber illegally cut/gathered [and] sawn right on the spot, thus gaining immunity for
himself[?][14]
As to the next three assigned errors which relied heavily on Prisco Marins
testimony, Respondent Court dismissed the said witness account as anything but
credible. It added that Marins testimony largely focused on a certification he made stating
that, five years ago, he inspected the same confiscated lumber which were to be used for
the repair of school buildings by A & E Construction in Sibuyan. But during the cross-
examination, he admitted that he made the inspection in December 1989. The appellate
tribunal noted that, by then, he had already been relieved of his position as OIC of the
Bureau of Forest Development in Romblon; hence, he had no business inspecting the
lumberyard of Petitioner Tan. In fact, he admitted that in December 1989, it was
Romulae Gadaoni who was already the highest forest officer in the island. [15]
As to the fifth and sixth alleged errors, Respondent Court ruled that corpus
delicti does not refer literally to the object of the crime -- in this case, the forest products
possessed without the required legal documents. The fact that the crimes charged were
perpetrated by the petitioners was credibly and amply proven by the detailed testimonies
of the prosecution witnesses, including the admission of Defense Witness Ismael
Ramilo. The seizure receipts merely served to corroborate their testimonies.[16]
The seventh and ninth assigned errors were deemed answered in the foregoing
discussions. As to the eighth, no other than the admission of his caretaker or katiwala,
Co-Accused Ramilo, proved that Tan was involved in the conspiracy. Ramilo testified
that the deliveries of lumber on the subject dates (October 26 and 30, 1989) were made
pursuant to the instruction of Tan; and that the latter owned said lumber, the trucks and
the construction firm. The two accused truck drivers who were caught in flagrante
delicto were mere employees of Tan.[17]
The last assigned error was set aside by Respondent Court as
unnecessary. Absolutely of no concern to the petitioners, who were caught in possession
of lumber without the required legal documents, was the alleged unconstitutionality of
the inclusion of firewood, bark, honey, beeswax, and even grass, shrub, the associated
water or fish in EO 277. There being other grounds to resolve the case, the
constitutionality of said phrase was not passed upon. [18]
14 of 111 – Envi Law Part III Cases
In their motion for reconsideration, petitioners raised these additional grounds: (1)
the Forestry Reform Code and the laws and regulations of the Department of
Environment and Natural Resources (DENR) distinguish between timber and lumber and
between lumber and other forest products; (2) the Informations alleged and the facts
proved that lumber is not covered by the provision supposedly violated; (3) judicial
interpretation or construction may not be resorted to in order to fill a gap or clear an
ambiguity in penal statutes and, assuming the propriety thereof, construction should be in
favor of the accused; (4) lack of documents for possession of lumber is not punishable
under the law; and (5) the perceived weakness in the testimony of Defense Witness
Prisco Marin should not strengthen the case for the prosecution. In its April 28, 1994
Resolution, Respondent Court found no cogent reason for the reversal or modification of
its Decision. Hence, this petition.[19]
The Issues
Petitioners now ask this Court to likewise pass upon their foregoing
submissions. Many of the errors raised, however, involve factual questions, the review of
which is not within the ambit of this Courts functions, particularly in this case where the
findings of the trial court were affirmed by the appellate court and where petitioners
failed to show any misappreciation of the evidence presented. [20] We shall therefore limit
our review only to questions of law.
Accordingly, we shall rule on the following legal issues: (1) the constitutionality of
Section 68 of EO 277, (2) the treatment by the lower courts
of lumber as timber and/or forest productwithin the contemplation of PD 705, as
amended, and (3) the alleged retroactive application of EO 277.
The Courts Ruling
The petition is not meritorious.
Preliminary Issue:
Constitutionality of Sec. 68, E.O. 277
The impugned legal provision reads:
Sec. 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.
Petitioners aver that the above provision is violative of substantive due process,
because it requires the possession of certain legal documents to justify mere possession of
forest products which, under Section 3(q) of PD 705, includes, among others, firewood,
bark, honey, beeswax, and even grass, shrub, flowering plant, the associated water or fish
and penalizes failure to present such required documents.
One of the essential requisites for a successful judicial inquiry into the
constitutionality of a law is the existence of an actual case or controversy involving a
conflict of legal rights susceptible of judicial determination. [21] As Respondent Court of
Appeals correctly pointed out, petitioners were not charged with the [unlawful]
possession of firewood, bark, honey, beeswax, and even grass, shrub, the associated
water or fish; thus, the inclusion of any of these enumerated items in EO 277 is
absolutely of no concern to petitioners. They are not asserting a legal right for which they
are entitled to a judicial determination at this time. Besides, they did not present any
convincing evidence of a clear and unequivocal breach of the Constitution that would
justify the nullification of said provision. [22] A statute is always presumed to be
constitutional, and one who attacks it on the ground of unconstitutionality must
convincingly prove its invalidity.[23]
Main Issue: Under PD 705 and EO 277, Is Lumber Considered Timber or Forest
Product?
Petitioners contend that possession of manufactured lumber is not punishable under
the Forestry Reform Code, as amended. As explicitly provided in Section 68 of both PD
705 and EO 277 (the law that amended the former), only the cutting, gathering, collecting
and/or possession, without license, of timber and other forest products are prohibited. As
expressly defined under Section 3(q) of PD 705, lumber is not timber or a forest
product. It is only in Section 79 of the same law where the sale of lumber, without
15 of 111 – Envi Law Part III Cases
compliance with established grading rules and standards,
is prohibited. Petitioners submit that the forest laws and regulations sufficiently
differentiate between timber and lumber; therefore, courts should not
construe lumber as timber.
The question of whether lumber is excluded from the coverage of Section 68 of PD
705, as amended, has been settled in Mustang Lumber, Inc. vs. Court of Appeals, [24] in
which this Court expressly ruled that lumber is included in the term timber.[25] We quote
at length the Courts discussion:
The Revised Forestry Code contains no definition of either timber or lumber. While the
former is included in forest products as defined in paragraph (q) of Section 3, the latter is
found in paragraph (aa) of the same section in the definition of Processing plant, which
reads:
(aa) Processing plant is any mechanical set-up, machine or combination of machine used
for the processing of logs and other forest raw materials into lumber, veneer, plywood,
wallboard, blackboard, paper board, pulp, paper or other finished wood products.
This simply means that lumber is a processed log or processed forest raw
material. Clearly, the Code uses the term lumber in its ordinary or common usage. In the
1993 copyright edition of Websters Third New International Dictionary, lumber is
defined, inter alia, as timber or logs after being prepared for the market. Simply put,
lumber is a processed log or timber.
It is settled that in the absence of legislative intent to the contrary, words and phrases
used in a statute should be given their plain, ordinary, and common usage meaning. And
insofar as possession of timber without the required legal documents is concerned,
Section 68 of P.D. No. 705, as amended, makes no distinction between raw or processed
timber. Neither do we.Ubi lex non distinguit nec nos distinguire debemus.[26]
Mustang was recently reiterated in Lalican vs. Vergara,[27] where we also said that
[t]o exclude possession of lumber from the acts penalized in Sec. 68 would certainly
emasculate the law itself. x x x After all, the phrase forest products is broad enough to
encompass lumber which, to reiterate, is manufactured timber. Indeed, to mention lumber
in the aforesaid section would simply result in tautology.
In addition, under American jurisprudence, lumber has been legally accepted as a
term referring to the manufactured product of logs[28] or to timber sawed or split into
marketable form, especially for use in buildings. [29]
Consistent with Mustang, we find no error in the holding of both lower
courts. Clearly, petitioners are liable for violation of Section 68 of the Forestry Reform
Code, as amended.
Corollary Issue:
No Retroactive Application of EO 277
Petitioners insist that EO 277 is not applicable to them, because the seized lumber
had been lawfully possessed by Cajidiocan Trading since March 1987, while the
amendatory law was issued only on July 25, 1987, and took effect fifteen days after
publication. This strained reasoning deserves scant consideration. First, at no time during
the apprehensions did petitioners claim that the lumber belonged to Cajidiocan
Trading. In fact, Petitioner Ramilo and the drivers openly claimed that the lumber and the
trucks belonged to A & E Construction which was, in turn, owned by Petitioner Tan. It
was only during the course of the trial, through the testimony of Prisco Marin
(characterized by the appellate court as anything but credible), that the alleged ownership
thereof by Cajidiocan Trading was brought out. Second, the supposed sale of the subject
lumber by Matzhou to Cajidiocan Trading, as evidenced by the auxiliary invoice,
occurred in March 1987, or more than two and a half years prior to the apprehension and
seizure that gave rise to this case. It is highly doubtful if the lumber bought at the earlier
date was the very same lumber confiscated in October 1989. No evidence was presented
to overcome this veritable doubt. Third and most important, assuming that indeed they
were the very same lumber, forest laws and regulations also require the following
documents: (1) certificate of lumber origin, (2) sales invoice, (3) delivery receipt, (4) tally
sheet, and (5) certificate of transport agreement. [30] None of these documents were
proffered in court or elsewhere.
Petitioners unlawful possession of the subject lumber occurred in October 1989. EO
277, which specifically included possession of timber and other forest products within the
contemplation of PD 705, had already been issued and in effect more than two years
previous thereto. Nothing will prevent the indictment of petitioners for violation of EO
277 at the time they were caught by the forest guards in flagrante delicto. The prohibited
act is a malum prohibitum, and absence of malice or criminal intent will not save the day
for them.[31]
WHEREFORE, the petition is DENIED for utter lack of merit. The questioned
Decision of the Court of Appeals is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
Davide, Jr., (Chairman), Bellosillo, and Quisumbing, JJ., concur.
Vitug, J., reiterates his separate opinion in Mustang Lumber, Inc. vs. CA, 257
SCRA 430.
16 of 111 – Envi Law Part III Cases
FIRST DIVISION
AMADO TAOPA, G.R. No. 184098
Petitioner,
Present:
PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA,
AZCUNA and
TINGA, JJ.*
PEOPLE OF THE PHILIPPINES,
Respondent. Promulgated:
November 25, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
RESOLUTION
CORONA, J.:
On April 2, 1996, the Community Environment and Natural Resources Office of
Virac, Catanduanes seized a truck loaded with illegally-cut lumber and arrested its driver,
Placido Cuison. The lumber was covered with bundles of abaca fiber to prevent
detection. On investigation, Cuison pointed to petitioner Amado Taopa and a certain
Rufino Ogalesco as the owners of the seized lumber.
Taopa, Ogalesco and Cuison were thereafter charged with violating Section 68
of Presidential Decree (PD) No. 705, [1] as amended, in the Regional Trial Court (RTC) of
Virac, Catanduanes. The information against them read:
That on or about the 2nd day of April 1996 at around 9:00
oclock in the morning at Barangay Capilihan, Municipality of Virac,
Province of Catanduanes, Philippines, and within the jurisdiction of
this Honorable Court, the above-named accused, with intent to possess,
conspiring, confederating and helping one another, did then and there,
willfully, unlawfully, criminally possess, transport in a truck bearing
Plate No. EAS 839 and have in their control forest products,
particularly one hundred thirteen (113) pieces of lumber of Philippine
Mahogany Group and Apitong species with an aggregate net volume of
One Thousand Six Hundred Eighty Four (1,684) board feet with an
approximate value of Ninety-Nine Thousand One Hundred Twenty
(Php99,120.00) Pesos, Philippine Currency, without any authority
and/or legal documents as required under existing forest laws and
regulations, prejudicial to the public interest.
ACTS CONTRARY TO LAW.[2]
Taopa, Ogalesco and Cuison pleaded not guilty on arraignment. After trial on
the merits, the RTC found them guilty as charged beyond reasonable doubt. [3]
Only Taopa and Cuison appealed the RTC decision to the Court of Appeals (CA). Cuison
was acquitted but Taopas conviction was affirmed. [4] The dispositive portion of the CA
decision read:
WHEREFORE, the Decision appealed from is REVERSED with
respect to accused-appellant Placido Cuison, who is ACQUITTED of
the crime charged on reasonable doubt, and MODIFIED with respect
to accused-appellants Amado Taopa and Rufino Ogalesco by reducing
the penalty imposed on them to four (4) years, nine (9) months and
eleven (11) days of prision correccional, as minimum, to ten (10) years
of prision mayor, as maximum.
SO ORDERED.[5]
In this petition,[6] Taopa seeks his acquittal from the charges against him. He alleges that
the prosecution failed to prove that he was one of the owners of the seized lumber as he
was not in the truck when the lumber was seized.
We deny the petition.
Both the RTC and the CA gave scant consideration to Taopas alibi because Cuisons
testimony proved Taopas active participation in the transport of the seized lumber. In
particular, the RTC and the CA found that the truck was loaded with the cargo in front of
Taopas house and that Taopa and Ogalesco were accompanying the truck driven by
Cuison up to where the truck and lumber were seized. These facts proved Taopas (and
Ogalescos) exercise of dominion and control over the lumber loaded in the truck. The
acts of Taopa (and of his co-accused Ogalesco) constituted possession of timber or other
forest products without the required legal documents. Moreover, the fact that Taopa and
Ogalesco ran away at the mere sight of the police was likewise largely indicative of guilt.
We are thus convinced that Taopa and Ogalesco were owners of the seized lumber.
However, we disagree with both the RTC and CA as to the penalty imposed on
Taopa.
Section 68 of PD 705, as amended,[7] refers to Articles 309 and 310 of the
Revised Penal Code (RPC) for the penalties to be imposed on violators. Violation of
Section 68 of PD 705, as amended, is punished as qualified theft. [8] The law treats
cutting, gathering, collecting and possessing timber or other forest products without
license as an offense as grave as and equivalent to the felony of qualified theft.
Articles 309 and 310 read:
17 of 111 – Envi Law Part III Cases

Art. 309. Penalties. Any person guilty of theft shall be punished by: years and one day of prision mayor, as minimum, to 20 years of reclusion temporal as
maximum, with the accessory penalties provided for by law.
1. The penalty of prision mayor in its minimum and
medium periods, if the value of the thing stolen is more SO ORDERED.
12,000 pesos but does not exceed 22,000 pesos; but if the
value of the thing stolen exceeds the latter amount, the
penalty shall be the maximum period of the one
prescribed in this paragraph, and one year for each
additional ten thousand pesos, but the total of the
penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory
penalties which may be imposed and for the purpose of
the other provisions of this Code, the penalty shall be
termed prision mayor or reclusion temporal, as the case
may be. (emphasis supplied)

2. xxx

Art. 310. Qualified theft. The crime of theft shall be punished

by the penalties next higher by two degrees than those respectively
specified in the next preceding articles xxx (emphasis supplied).

The actual market value of the 113 pieces of seized lumber was P67,630.[9] Following
Article 310 in relation to Article 309, the imposable penalty should be reclusion
temporal in its medium and maximum periods or a period ranging from 14 years, eight
months and one day to 20 years plus an additional period of four years for the excess
of P47,630.
The minimum term of the indeterminate sentence[10] imposable on Taopa shall
be the penalty next lower to that prescribed in the RPC. In this case, the minimum term
shall be anywhere between 10 years and one day to 14 years and eight months or prision
mayor in its maximum period to reclusion temporal in its minimum period.

The maximum term shall be the sum of the additional four years and the
medium period[11] of reclusion temporal in its medium and maximum periods or 16 years,
five months and 11 days to 18 years, two months and 21 days of reclusion temporal. The
maximum term therefore may be anywhere between 16 years, five months and 11 days
of reclusion temporal to 22 years, two months and 21 days of reclusion perpetua.

WHEREFORE, the petition is hereby DENIED. The January 31, 2008

decision and July 28, 2008 resolution of the Court of Appeals in CA-G.R. CR No. 30380
are AFFIRMED with MODIFICATION. Petitioner Amado Taopa is hereby
found GUILTY beyond reasonable doubt for violation of Section 68 of PD No. 705, as
amended, and sentenced to suffer the indeterminate penalty of imprisonment from 10
18 of 111 – Envi Law Part III Cases

SECOND DIVISION 2. That the party of the Second Part is a businessman dealing
in buy and sell of General Merchandise, dry goods and
construction materials;
RODOLFO TIGOY, G.R. No. 144640
Petitioner, 3. That the party of the Second Part will engage the services
Present: of the two (2) cargo trucks of the party of the First Part;
PUNO, J., Chairperson,
- versus SANDOVAL-GUTIERREZ, 4. That the services agreed upon should be rendered by the
CORONA, party of the First Part on August 3, 1993 from Larapan,
AZCUNA, and Linamon, Lanao del Norte to Dipolog City for an agreed
GARCIA, JJ. amount of TEN THOUSAND (P10,000.00) Pesos per truck or
COURT OF APPEALS AND a total of TWENTY THOUSAND (P20,000.00) Pesos,
PEOPLE OF THE PHILIPPINES, Promulgated: Philippine Currency for the carriage of cement and other
Respondents. merchandise owned by the party of the Second Part;
June 26, 2006
5. That any legal controversy involving the cargo or of and
x ---------------------------------------------------------------------------------------- x when the cargo trucks are not actually used for the purpose
herein stipulated, it is agreed that the same is the sole
responsibility of the party of the Second Part without any
DECISION liability of the party of the First Part. [1]
In the evening of October 3, 1993, Ong allegedly ordered Nestor Sumagang and
AZCUNA, J.: petitioner Rodolfo Tigoy who had been employed by him as truck drivers for two (2)
years and ten (10) years, respectively, to bring the two trucks to Lolong Bertodazo in
Larapan, Lanao del Norte which is about fifteen (15) minutes away from Iligan City. He
This is a petition for review under Rule 45 of the Rules of Court assailing the decision instructed the two drivers to leave the trucks in Larapan for the loading of the
and resolution, dated March 6, 2000 and August 23, 2000, respectively, of the Court of construction materials by Lolong Bertodazo, and to go back at dawn for the trip
Appeals in CA-G.R. CR No. 20864 entitled People of the Philippines v. Nestor Ong and to Dipolog City. Thus, after meeting with Bertodazo, Sumagang and petitioner Tigoy
Rodolfo Tigoy, acquitting Nestor Ong for insufficiency of evidence, while convicting allegedly went home to return to Larapan at four oclock in the morning the next day.
Rodolfo Tigoy for violating Section 68 of Presidential Decree (P.D.) No. 705 or the When they arrived, the trucks had been laden with bags of cement and were half-covered
Revised Forestry Code of the Philippines, as amended by Executive Order (E.O.) No. with canvas.[2] Before departing, they allegedly checked the motor oil, water, engine and
277, Series of 1987, in relation to Articles 309 and 310 of the Revised Penal Code. tires of the trucks to determine if the same were in good condition.
The facts of the case are as follows:
That same morning of October 4, 1993, Senior Inspector Rico Lacay Tome (then
On August 3, 1993, Nestor Ong, who had been engaged in the trucking business Deputy Chief of Police of Ozamis City), while escorting Provincial Director Dionisio
in Iligan City since 1986, was allegedly introduced by his friend Gamad Muntod to Coloma at the ICC Arts Center in Ozamis City, along with the members of the Special
Lolong Bertodazo who signified his intent to rent the trucks of Ong to transport Operation Group, received a dispatch from the 466th PNP Company situated at Barangay
construction materials from Larapan, Lanao del Norte to Dipolog City. A Contract to Bongbong, Ozamis City, informing him that two trucks, a blue and green loaded with
Transport was supposedly entered into between Ong and Bertodazo, the salient portions cement, that were going towards Ozamis City did not stop at the checkpoint. Upon
of which state: receiving the report, Tome, along with PO2 Peter Paul Nuqui and PO3 Bienvenido Real,
boarded their patrol vehicle, a mini cruiser jeep, to intercept the two trucks at Lilian
1. That the party of the First Part is an owner of Cargo Terminal, Ozamis City.[3]
Trucks with place of business at Iligan City;
At the Lilian Terminal, PO2 Nuqui, who was the only one in uniform among the
police officers, flagged down the two trucks but the same just sped away and proceeded
towards the direction of Oroquieta City. Aboard their patrol vehicle, they chased the
19 of 111 – Envi Law Part III Cases
trucks and overtook the same at Barangay Manabay. They blocked the road with their
vehicle causing the two trucks to stop.
According to Senior Inspector Tome, he asked the driver who had alighted from
the green truck why he did not stop at the checkpoint but the latter did not answer. When
he inquired what was loaded in the truck, the driver replied that there is S.O.P, which
means grease money in street parlance.[4] This raised the suspicion of Tome that the
trucks were loaded with hot items.
Meanwhile, the blue truck which had been speeding behind the green truck and
was being driven by Sumagang was intercepted by PO3 Real. Upon inspection, the police
officers discovered piles of sawn lumber beneath the cement bags in both trucks. Tome
inquired if the drivers had a permit for the lumber but the latter could not produce any.
The drivers were brought and turned over to the investigator at the City Hall
in Ozamis City. The truckmen, namely, Felix Arante and Doro Lopez, and another
passenger whom Tigoy identified as Lolong Bertodazo, who were riding with them in the
trucks, were not investigated. According to Nuqui, they did not notice that the group had
left. It was later learned that they were instructed by Sumagang to inform Nestor Ong of
the incident.
Afterwards, the group of Tome proceeded back to the ICC Arts Center and
informed the Provincial Director of the apprehension. Meanwhile, the drivers, Tigoy and
Sumagang, were detained at the Ozamis City Police Station while Arante and Lopez were
released.[5]
Meanwhile, Ermelo delos Santos, Chief of the Department of Environment and
Natural Resources Community and Environment and Natural Resources Office (DENR-
CENRO),[6] after receiving a call from the Ozamis City Police Station that two trucks
were apprehended transporting sawn lumber without a permit and were brought to the
City Hall, sent Rolando Dingal, Forester of the DENR, together with Teodoro Echavez,
Juanito Taruc and Lucio Penaroya, to investigate.
Petitioner Tigoy and Sumagang presented to Dingal the registration papers of
the two trucks and appearing therein was the name of Nestor Ong as the owner. After
ascertaining that the sawn lumber loaded on the two trucks did not have supporting
documents, Dingal and his companions scaled the subject lumber and prepared a tally
sheet. Loaded in the blue Nissan ten-wheeler truck were 229 pieces of lumber with a total
volume of 6,232.46 board feet; and, in the green Isuzu eight-wheeler truck, 333 pieces of
lumber with a total volume of 5,095.5 board feet. [7] Consequently, the lumber and the
vehicles were seized upon the order of the DENR Regional Executive Director. [8]
On October 6, 1993, an Information was filed against Nestor Ong, Sumagang,
Lolong Bertodazo and petitioner Tigoy for possession of forest products without legal
permit, thus:
That on or about the 4th day of August, 1993 at Barangay
Catadman, Ozamiz City, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, conspiring and
confederating together and mutually helping each other, for a common
design, did then and there willfully, unlawfully, feloniously and
illegally possess and transport without the necessary legal documents
nor permit from the lawful authorities, sawn dipterocarp lumbers
(Philippine Mahogany), in the following manner, to wit: accused
Nestor Ong, being the owner of 2 ten wheeler trucks with Plate Nos.
GDA-279 and PNH-364 facilitated and allowed the use and transport of
above-stated sawn [lumber] from Larapan, Lanao del Norte, but
intercepted by the PNP authorities in Ozamiz City; while the accused
Lolong Bertodazo facilitated the loading and transport of said sawn
lumbers, while accused Nestor Sumagang y Lacson drove the Nissan
10 wheeler cargo truck bearing Plate No. GDA-279 which was loaded
with 333 pieces of said sawn dipterocarp lumbers (Philippine
Mahogany) of assorted sizes equivalent [to] 5,095.5 board feet which
was concealed under piled bags of cement, which lumbers [were]
valued at P134, 242.36; while accused Rodolfo Tigoy drove the 8
wheeler Isuzu truck bearing Plate No. ONH-364, which was loaded and
transported with 229 pieces of sawn dipterocarp lumbers (Philippine
Mahogany) of assorted sizes equivalent to 6,232.46 board feet which
was concealed under piled bags of cement which lumbers [were]
valued at P92,316.77 or total value of P226,559.13, without, however,
causing damage to the government, inasmuch as the aforestated
lumbers were recovered.
CONTRARY to Section 68 of Presidential Decree 705, as
amended by Executive Order No. 277, Series of 1987, in relation to
Article 309 and 310 of the Revised Penal Code.[9]
Ong and petitioner Tigoy entered pleas of not guilty during the arraignment. Sumagang
died after the case was filed while the other co-accused, Lolong Bertodazo, was not
arrested and has remained at large.
On October 11, 1996, the Regional Trial Court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, finding accused Nestor Ong and Rodolfo Tigoy
[GUILTY] beyond reasonable doubt of possession of dipterocarp
lumber [VALUED] at more than P22,000.00 without the legal
documents as required by existing laws and regulations, penalized as
qualified theft, this Court sentences them to an indeterminate penalty of
ten (10) years and one (1) day of prision mayor to eighteen (18) years
20 of 111 – Envi Law Part III Cases

and three (3) months of reclusion temporal. The lumber and the THE COURT OF APPEALS ERRED IN FINDING
conveyances used are forfeited in favor of the government. With costs. PETITIONER TIGOY TO HAVE KNOWLEDGE OF THE LUMBER
HE WAS TRANSPORTING; AND,
The DENR is ordered to sell/dispose of the lumber and conveyances in
accordance with the existing laws, WITHOUT DELAY. Let the Court IV
of Appeals, Fourteenth Division, before which accused Ongs appeal of THE COURT OF APPEALS ERRED IN FINDING THAT
this Courts denial of his action for replevin relative to his trucks is PETITIONER TIGOY HAD ACTUAL AND PHYSICAL
pending, be furnished with a copy of this judgment. POSSESSION OF THE UNDOCUMENTED LUMBER.[12]

With costs. Stated otherwise, the core issue presented is whether or not petitioner Tigoy is guilty of
conspiracy in possessing or transporting lumber without the necessary permit in violation
SO ORDERED.[10] of the Revised Forestry Code of the Philippines.
Section 68 of P.D. No. 705, as amended by E.O. No. 277, otherwise known as
Declaring that constructive possession of unlicensed lumber is not within the the Revised Forestry Code of the Philippines, provides:
contemplation of Section 68 of P.D. No. 705, and for failure by the prosecution to prove Section 68. Cutting, Gathering and/or Collecting Timber or
the complicity of Ong, the Court of Appeals 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
rendered its decision on March 6, 2000 modifying the ruling of the lower court, thus: land, without any authority, or possess timber or other forest products
without the legal documents as required under existing forest laws and
WHEREFORE, the judgment appealed from is hereby regulations, shall be punished with the penalties imposed under Articles
MODIFIED in that accused-appellant Nestor Ong is acquitted for 309 and 310 of the Revised Penal Code. . . .
insufficiency of evidence and his two (2) trucks are ordered returned to
him. The conviction of Rodolfo Tigoy is upheld and the decision
dated October 11, 1996 is AFFIRMED in all respects. There are two ways of violating Section 68 of the above Code: 1) by cutting, gathering
and/or collecting timber or other forest products without a license; and, 2) by possessing
SO ORDERED.[11] timber or other forest products without the required legal documents.

On March 24, 2000, petitioner filed with the Court of Appeals a Motion for Petitioner was charged with and convicted of transporting lumber without a permit which
Reconsideration praying for his acquittal but the same was denied on August 23, is punishable under Section 68 of the Code. He, Sumagang and the rest of their
2000. companions were apprehended by the police officers in flagrante delicto as they were
transporting the subject lumber from Larapan to Dipolog City.
Hence, this petition, with the following assignment of errors:
Petitioner maintains that he could not have conspired with Lolong Bertodazo as
I he did not know about the unlicensed lumber in the trucks. He believed that what he was
THE COURT OF APPEALS ERRED IN FINDING transporting were bags of cement in view of the contract between Ong and Bertodazo.
COLLUSION BETWEEN LOLONG BERTODAZO AND Also, he was not around when Bertodazo loaded the trucks with the lumber hidden under
PETITIONER TIGOY; the bags of cement.
This contention by petitioner, however, was not believed by the lower court. In
II declaring that petitioner connived with Bertodazo in transporting the subject lumber, the
THE COURT OF APPEALS ERRED IN COMPLETELY court a quo noted:
DISREGARDING THE AFFIDAVIT OF LOLONG BERTODAZO
AGAINST HIS PENAL INTEREST; x x x The evidence of the prosecution established that the two drivers
of accused Ong refused to stop at a checkpoint, a fact admitted by both
III in their affidavit, Exhs. E and E-2. Likewise, the two drivers refused to
21 of 111 – Envi Law Part III Cases

stop on the national highway near a bus terminal when required by a

uniformed policeman. When finally accosted, one of the drivers, whom
witness Tome identified as the driver of the green truck, Sumagang, but Costs against petitioner.
who actually was Tigoy (as he was the driver of the green truck and
who came to the road block first, being the lead driver) offered S.O.P. SO ORDERED.
which to witness Tome meant that the trucks were carrying hot items.

Why would the drivers refuse to stop when required? Did they fear
inspection of their cargo? Why would S.O.P. (which in street parlance
is grease money) be offered to facilitate the passage of the trucks? The
only logical answer to all these questions is that the drivers knew that
they were carrying contraband lumber. This Court believes that the
drivers had knowledge of the fact that they were transporting and were
in possession of undocumented lumber in violation of law. [13]

In offenses considered as mala prohibita or when the doing of an act is

prohibited by a special law such as in the present case, the commission of the prohibited
act is the crime itself. It is sufficient that the offender has the intent to perpetrate the act
prohibited by the special law, and that it is done knowingly and consciously. [14]

Direct proof of previous agreement to commit an offense is not necessary to

prove conspiracy.[15] Conspiracy may be proven by circumstantial evidence.[16] It may be
deduced from the mode, method and manner by which the offense is perpetrated, or
inferred from the acts of the accused when such acts point to a joint purpose and design,
concerted action and community of interest. [17] It is not even required that the participants
have an agreement for an appreciable period to commence it. [18]

Petitioners actions adequately show that he intentionally participated in the

commission of the offense for which he had been charged and found guilty by both the
trial court and the Court of Appeals.

Finding that petitioners conviction was reached without arbitrariness and with
sufficient basis, this Court upholds the same. The Court accords high respect to the
findings of facts of the trial court, its calibration of the collective testimonies of the
witnesses, its assessment of the probative weight of the evidence of the parties as well as
its conclusions[19] especially when these are in agreement with those of the Court of
Appeals, which is the case here. As a matter of fact, factual findings of the trial court,
when adopted and confirmed by the Court of Appeals, are generally final and
conclusive.[20]

WHEREFORE, the petition is DENIED and the Decision and Resolution,

dated March 6, 2000 and August 23, 2000, respectively, of the Court of Appeals in CA-
G.R. CR No. 20864 are hereby AFFIRMED.
22 of 111 – Envi Law Part III Cases
SECOND DIVISION
[G.R. No. 120365. December 17, 1996]
PEOPLE OF THE PHILIPPINES, plaintiff-appelle, vs. WILSON B. QUE, accused-
appellant.
DECISION
PUNO, J.:
Accused-appellant Wilson B. Que appeals from his conviction for violation of
Section 68 of Presidential Decree (P.D.) 705[1] as amended by Executive Order (E.O.)
277.[2]
The facts show that two weeks before March 8, 1994, SPO1 Dexter Corpuz, a
member of the Provincial Task Force on Illegal Logging, received an information that a
ten-wheeler truck bearing plate number PAD-548 loaded with illegally cut lumber will
pass through Ilocos Norte. Acting on said information, members of the Provincial Task
Force went on patrol several times within the vicinity of General Segundo Avenue in
Laoag City.[3]
On March 8, 1994, SPO1 Corpuz, together with SPO1 Zaldy Asuncion and SPO1
Elmer Patoc went on patrol around the area. At about 1:00 in the morning, they posted
themselves at the corner of General Segundo Avenue and Rizal Street. Thirty minutes
later, they saw a ten-wheeler truck with plate number PAD-548 pass by. They followed
the truck and apprehended it at the Marcos Bridge. [4]
There were three persons on board the truck: driver Wilfredo Cacao, accused-
appellant Wilson Que, and an unnamed person. The driver identified accused-appellant as
the owner of the truck and the cargo.[5]
SPO1 Corpuz checked the cargo and found that it contained coconut slabs. When
interviewed, accused-appellant told SPO1 Corpuz that there were sawn lumber inserted in
between the coconut slabs.[6]
SPO1 Corpuz asked accused-appellant for the Cargos supporting documents,
specifically: (1) certificate of lumber origin, (2) certificate of transport agreement, (3)
auxiliary invoice, (4) receipt from the DENR, and (5) certification from the forest ranger
regarding the origin of the coconut slabs. Accused-appellant failed to present any of these
documents. All he could show was a certification[7] from the Community Environment
and Natural Resources Office (CENRO), Sanchez Mira, Cagayan that he legally acquired
the coconut slabs. The certification was issued to facilitate transport of the slabs from
Sanchez Mira, Cagayan to San Vicente, Urdaneta, Pangasinan. [8]
SPO1 Corpuz brought accused-appellant to the office of the Provincial Task Force
at the provincial capitol. Again, accused-appellant admitted to the members of the
Provincial Task Force that there were sawn lumber under the coconut slabs. [9]
At 10:00 oclock in the morning, the members of the Provincial Task Force, together
with three CENRO personnel examined the cargo. The examination confirmed that the
cargo consisted of coconut slabs and sawn tanguile lumber. The coconut slabs were piled
at the sides of the truck, concealing the tanguile lumber.[10] When the CENRO personnel
inventoried and scaled the seized forest products, they counted two hundred fifty eight
(258) pieces of tanguile lumber with a total volume of 3,729.3 board feet (8.79 cubic
meters) and total assessed value of P93,232.50.[11]
On June 23, 1994, accused-appellant was charged before the Regional Trial Court
of Laoag with violation of Section 68 of P.D. 705 as amended by E.O. 277. The
Information alleged:
That on or about the 8th day of March, 1994, in the City of Laoag, Philippines,
and within the jurisdiction of this Honorable Court, the above-named
accused, being then the owner of an I(s)uzu Ten Wheeler Truck bearing Plate
No. PAD-548, with intent of gain, did then and there willfully, unlawfully
and feloniously have in possession, control and custody 258 pieces of various
sizes of Forest Products Chainsawn lumber (Species of Tanguile) with a total
volume of 3,729.3 bd. ft. or equivalent to 8.79 cubic meters valued in the total
amount of P93,232.50 at P25.00/bd. ft., necessary permit, license or authority
to do so from the proper authorities, thus violating the aforecited provision of
the law, to the damage and prejudice of the government.
CONTRARY TO LAW.[12]
Accused-appellant denied the charge against him. He claimed that he acquired the
258 pieces of tanguile lumber from a legal source. During the trial, he presented the
private land timber permits (PLTP) issued by the Department of Environment and
Natural Resources (DENR) to Enrica Cayosa [13] and Elpidio Sabal.[14] The PLTP
authorizes its holder to cut, gather and dispose timber from the forest area covered by the
permit. He alleged that the tanguile lumber came from the forest area covered by th
PLTPs of Cayosa and Sabal and that they were given to him by Cayosa and Sabal as
payment for his hauling services.[15]
Accused-appellant also objected to the admission of the 258 pieces of lumber as
evidence against him. He contended that they were fruits of an illegal search and seizure
and of an uncounselled extrajudicial admission.
The trial court found accused-appellant guilty and sentenced him to reclusion
perpetua. It also ordered the confiscation of the seized lumber and the ten-wheeler truck
owned by accused-appellant. The dispositive portion of the Decision[16] states:
23 of 111 – Envi Law Part III Cases
WHEREFORE, judgment is hereby rendered declaring accused Wilson B.
Que guilty beyond reasonable doubt of the violation of Section 68 of PD 705,
as amended by Executive Order No. 277 and he is sentenced to suffer the
penalty of RECLUSION PERPETUA, plus all the accessory penalties provided
by law. The bail bond filed for the provisional liberty of the accused is
CANCELLED.
The two hundred fifty-eight (258) pieces of lumber (tanguile specie) and the
ten-wheeler truck bearing plate No. PAD-548 which was used in the
commission of the crime are hereby ordered confiscated in favor of the
government to be disposed of in accordance with law.
Costs against the accused.
SO ORDERED.[17]
Appellant now comes before us with the following assignment of errors:[18]
1. It was error for the Court to convict accused under Section 68, PD705
as amended by EO 277 for possessing timber or other forest products
without the legal documents as required under existing forest laws
and regulations on the ground that since it is only in EO No. 277
where for the first time mere possession of timber was criminalized,
there are no existing forest laws and regulations which required
certain legal documents for possession of timber and other forest
products.
2. The Court erred in allowing evidence secured in violation of the
constitutional rights of accused against unlawful searches and
seizures.
3. The Court erred in allowing evidence secured in violation of the
constitutional rights of accused under custodial investigation.
On the first assignment of error, appellant argues that he cannot be convicted for
violation of Section 68 of P.D. 705 because E.O. 277 which amended Section 68 to
penalize the possession of timber or other forest products without the proper legal
documents did not indicate the particular documents necessary to make the possession
legal. Neither did the other forest laws and regulations existing at the time of its
enactment.
Appellants argument deserves scant consideration. Section 68 of P.D. 705 provides:
Sec. 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. (emphasis supplied)
Appellant interprets the phrase existing forest laws and regulations to refer to those
laws and regulations which were already in effect at the time of the enactment of E. O.
277. The suggested interpretation is strained and would render the law inutile. Statutory
construction should not kill but give life to the law. The phrase should be construed to
refer to laws and regulations existing at the time of possession of timber or other forest
products. DENR Administrative Order No. 59 series of 1993 specifies the documents
required for the transport of timber and other forest products. Section 3 of the
Administrative Order provides:
Section 3. Documents Required.
Consistent with the policy stated above, the movement of logs, lumber, plywood, veneer,
non-timber forest products and wood-based or nonwood-based products/commodities
shall be covered with appropriate Certificates of Origin, issued by authorized DENR
officials, as specified in the succeeding sections.
xxx
3.3 Lumber. Unless otherwise herein provided, the transport of lumber shall be
accompanied by a CERTIFICATE OF LUMBER ORIGIN (CLO) issued by the
CENRO or his duly authorized representative which has jurisdiction over the
processing plant producing the said lumber or the lumber firm authorized to deal
in such commodities. In order to be valid, the CLO must be supported by the
company tally sheet or delivery receipt, and in case of sale, a lumber sales
invoice.
xxx
When apprehended on March 8, 1994, accused-appellant failed to present any
certificate of origin of the 258 pieces of tanguile lumber. The trial court found:
xxx
24 of 111 – Envi Law Part III Cases
xxx When apprehended by the police officers, the accused admittedly could
not present a single document to justify his possession of the subject
lumber. xxx
Significantly, at the time the accused was apprehended by the police offices,
he readily showed documents to justify his possession of the coconut
slabs. Thus, he showed a certification issued by Remigio B. Rosario, Forest
Ranger, of the DENR, CENRO, Sanchez Mira, Cagayan (Exhibit "E") and a
xerox copy of the original certificate of title covering the parcel of land where
the coconut slabs were cut. (Exhibit "F")
It is worthy to note that the certification dated March 7, 1994 states:
THIS IS TO
CERTIFY that the one (1) truckload of coconut slabs to be transporte
d by Mr. Wilson Que on board truck bearing Plate No. PAD 548 wer
e derived from matured coconut palms gathered inside the private
land of Miss Bonifacia Collado under OCT No. P-11614 (8) located
at Nagrangtayan, Sanchez Mira, Cagayan.
This certification is being issued upon the request of Mr. Wilson Que
for the purpose of facilitating the transportation of said coconut slabs
from Sanchez Mira, Cagayan to San Vicente, Urdaneta, Pangasinan
and is valid up to March 11, 1994 or upon discharge of its cargoes at
its final destination, whichever comes first.
It is crystal clear, therefore, that the accused was given permit by the DENR to
transport one (1) truckload of coconut slabs only between March 7 to 11,
1994. The accused was apprehended on March 8, 1994 aboard his
truck bearing plate number PAD-548 which was loaded not only with coconut
slabs but with chainsawn lumber as well. Admittedly, the lumber could not be
seen from the outside. The lumber were placed in the middle and not visible
unless the coconut slabs which were placed on the top, sides and rear of the
truck were removed.
Under these circumstances, the Court has no doubt that the accused was very
much aware that he needed documents to possess and transport the lumber
(b)ut could not secure one and, therefore, concealed the lumber by placing the
same in such a manner that they could not be seen by police authorities by
merely looking at the cargo.
In this regard, the Court cannot give credence to his alleged letter dated March
3, 1994 addressed to the OIC CENRO Officer, CENRO, Sanchez Mira,
Cagayan informing the CENRO that he would be transporting the subject
lumber on March 7, 1994 from Sanchez Mira, Cagayan to Sto. Domingo,
Ilocos Sur but was returned to him for the reason that he did not need a permit
to transport the subject lumber. (Exhibit 8, 8-A)
While it is true that the letter indicates that it was received by CENRO on
March 4, 1994, the court has doubts that this was duly filed with the
concerned office. According to the accused, he filed the letter in the morning
of March 4 and returned in the afternoon of the same day. He was then
informed by an employee of the CENRO whom he did not identify that he did
not need a permit to transport the lumber because the lumber would be for
personal used (sic) and x x came from PLTP. (Ibid) The letter-request was
returned to him.
The fact that the letter-request was returned to him creates doubts on the
stance of the accused. Documents or other papers, i.e., letter-request of this
kind filed with a government agency are not returned. Hence, when a person
files or submits any document to a government agency, the agency gets the
original copy. The filer only gets a duplicate copy to show that he has filed
such document with the agency. Moreover, his avoidance as regards the
identity of the employee of the CENRO who allegedly returned the letter-
request to him also creates doubts on his stance. Thus, on cross-examination,
the accused, when asked about the identity of the employee of the CENRO
who returned the letter-request to him answered that he could recognize the
person x x but they were already reshuffled. (TSN, February 8, 1995, p.
104) At one point, the accused also said that he did not know if that person
was an employee of the DENR. (Ibid, p. 105)
Be that as it may, the Court finds significance in the last paragraph of this
letter-request, to wit:
xxx
Please consider this as my Certificate of Transport Agreement in
view of the fact that I am hauling and transporting my own lumber
for my own needs.
Thus, the accused through this letter considered the same as his certificate of
transport agreement. Why then, if he was telling the truth, did he not take this
letter with him when he transported the lumber on March 7, 1994?
All these circumstances clearly show that the letter comes from a polluted
source.[19]
xxx
Accused-appellants possession of the subject lumber without any documentation clearly
constitutes an offense under Section 68 of P.D. 705.
We also reject appellants argument that the law only penalizes possession of illegal
forest products and that the possessor cannot be held liable if he proves that the cutting,
gathering, collecting or removal of such forest products is legal. There are two (2) distinct
and separate offenses punished under Section 68 of P.D. 705, to wit:
25 of 111 – Envi Law Part III Cases
(1) Cutting, gathering, collecting and removing timber or other forest
products from any forest land, or timber from alienable or
disposable public land, or from private land without any authority;
and
(2) Possession of timber or other forest products without the legal
documents required under existing forest laws and regulations.
In the first offense, one can raise as a defense the legality of the acts of cutting,
gathering, collecting or removing timber or other forest products by presenting the
authorization issued by the DENR. In the second offense, however, it is immaterial
whether the cutting, gathering, collecting and removal of the forest products is legal or
not. Mere possession of forest products without the proper documents consummates the
crime. Whether or not the lumber comes from a legal source is immaterial because E.O.
277 considers the mere possession of timber or other forest products without the proper
legal documents as malum prohibitum.
On the second and third assignment of error, appellant contends that the seized
lumber are inadmissible in evidence for being fruits of a poisonous tree. Appellant avers
that these pieces of lumber were obtained in violation of his constitutional right against
unlawful searches and seizures as well as his right to counsel.
We do not agree.
The rule on warrantless search and seizure of a moving vehicle was summarized by
this court in People vs. Bagista,[20] thus:
The general rule regarding searches and seizures can be stated in this
manner: no person shall be subjected to a search of his person, personal
effects or belongings, or his residence except by virtue of a search warrant or
on the occasion of a lawful arrest. The basis for the rule can be found in
Article III, Section 2 of the 1987 Constitution, which states:
The right of the people to be secure in their persons, houses, papers
and effects against unreasonable searches and seizures of whatever
nature and for any purpose, shall be inviolable, and no search warrant
or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or
affirmation of the complainant and witnesses he may produce, and
particularly describing the place to be searched, and the person or
things to be seized.
Article III, Section 3 (2) further ordains that any evidence obtained in
violation of the aforementioned right shall, among others, be inadmissible for
any purpose in any proceeding.
The Constitutional proscription against warrantless searches and seizures
admits of certain exceptions. Aside from a search incident to a lawful arrest, a
warrantless search had been upheld in cases of moving vehicles, and the
seizure of evidence in plain view.
With regard to the search of moving vehicles, this had been justified on the
ground that the mobility of motor vehicles makes it possible for the vehicle to
be searched to move out of the locality or jurisdiction in which the warrant
must be sought.
This in no way, however, gives the police officers unlimited discretion to
conduct warrantless searches of automobiles in the absence of probable
cause. When a vehicle is stopped and subjected to an extensive search, such a
warrantless search has been held to be valid as long as the officers conducting
the search have reasonable or probable cause to believe before search that they
will find the instrumentality or evidence pertaining to a crime, in the vehicle
to be searched. (citations omitted; emphasis supplied)
As in Bagista, the police officers in the case at bar had probable cause to search
appellants truck. A member of the Provincial Task Force on Illegal Logging received a
reliable information that a ten-wheeler truck bearing plate number PAD-548 loaded with
illegal lumber would pass through Ilocos Norte. Two weeks later, while members of the
Provincial Task Force were patrolling along General Segundo Avenue, they saw the ten-
wheeler truck described by the informant. When they apprehended it at the Marcos
Bridge, accused-appellant, the owner of the truck and the cargo, admitted that there were
sawn lumber in between the coconut slabs. When the police officers asked for the
lumbers supporting documents, accused-appellant could not present any. The foregoing
circumstances are sufficient to prove the existence of probable cause which justified the
extensive search of appellants truck even without a warrant.Thus, the 258 pieces of
tanguile lumber were lawfully seized and were thus properly admitted as evidence to
prove the guilt of accused-appellant.
The foregoing disquisition renders unnecessary the issue of whether appellants right
to counsel under custodial investigation was violated. The Resolution of the issue will not
affect the finding of guilt of appellant.
IN VIEW WHEREOF, the instant appeal is DISMISSED. The decision appealed
from is AFFIRMED. Costs Against appellant.
SO ORDERED.
Regalado (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.
26 of 111 – Envi Law Part III Cases
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.
27 of 111 – Envi Law Part III Cases
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
28 of 111 – Envi Law Part III Cases
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.
29 of 111 – Envi Law Part III Cases
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
30 of 111 – Envi Law Part III Cases
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.
[14]
Petitioners sniff at the citation of Chavez v. Public Estates Authority, 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
31 of 111 – Envi Law Part III Cases
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.
32 of 111 – Envi Law Part III Cases
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,
33 of 111 – Envi Law Part III Cases
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.
34 of 111 – Envi Law Part III Cases
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
35 of 111 – Envi Law Part III Cases
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.
36 of 111 – Envi Law Part III Cases
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.
37 of 111 – Envi Law Part III Cases
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,
38 of 111 – Envi Law Part III Cases
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)
39 of 111 – Envi Law Part III Cases
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.
40 of 111 – Envi Law Part III Cases
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
41 of 111 – Envi Law Part III Cases
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
42 of 111 – Envi Law Part III Cases
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[53] adopted in Section 2 of Article XII must be taken to mean
less than dictatorial, all-encompassing control; but nevertheless sufficient to give the
State the power to direct, restrain, regulate and govern the affairs of the extractive
enterprises. Control by the State may be on a macro level, through the establishment of
policies, guidelines, regulations, industry standards and similar measures that would
enable the government to control the conduct of affairs in various enterprises and restrain
activities deemed not desirable or beneficial.
The end in view is ensuring that these enterprises contribute to the economic
development and general welfare of the country, conserve the environment, and uplift the
well-being of the affected local communities. Such a concept of control would be
compatible with permitting the foreign contractor sufficient and reasonable management
authority over the enterprise it invested in, in order to ensure that it is operating
efficiently and profitably, to protect its investments and to enable it to succeed.
The question to be answered, then, is whether RA 7942 and its Implementing
Rules enable the government to exercise that degree of control sufficient to direct
and regulate the conduct of affairs of individual enterprises and restrain
undesirable activities.
On the resolution of these questions will depend the validity and constitutionality of
certain provisions of the Philippine Mining Act of 1995 (RA 7942) and its Implementing
Rules and Regulations (DAO 96-40), as well as the WMCP FTAA.
Indeed, petitioners 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:
43 of 111 – Envi Law Part III Cases
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).
44 of 111 – Envi Law Part III Cases
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
45 of 111 – Envi Law Part III Cases
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.
46 of 111 – Envi Law Part III Cases
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.
47 of 111 – Envi Law Part III Cases
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
48 of 111 – Envi Law Part III Cases

approved Work Programme or Budget shall be submitted for approval changes will have to be effected, and effected rapidly, since events may take shape and
of the Secretary. 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.
From the provisions quoted above, petitioners generalize by asserting that the Such changes are, however, subject to certain conditions that will serve to limit or restrict
government does not participate in making critical decisions regarding the operations of the variance and prevent the contractor from straying very far from what has been
the mining firm. Furthermore, while the State can require the submission of work approved.
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. Clause 8.5 provides the contractor a certain amount of flexibility to meet
unexpected situations, while still guaranteeing that the approved work programs and
We hold, however, that the foregoing provisions do not manifest a relinquishment budgets are not abandoned altogether. Clause 8.5 does not constitute proof that the State
of control. For instance, Clause 8.2 merely provides a mechanism for preventing the has relinquished control. And ultimately, should there be disagreement with the actions
business or mining operations from grinding to a complete halt as a result of possibly taken by the contractor in this instance as well as under Clause 8.3 discussed above, the
over-long and unjustified delays in the governments handling, processing and approval of DENR secretary may resort to cancellation/termination of the FTAA as the ultimate
submitted work programs and budgets. Anyway, the provision does give the DENR sanction.
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.
Discretion to Select Contract
On the other hand, Clause 8.3 seeks to provide a temporary, stop-gap solution in the Area Not an Abdication of Control
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. 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
These temporary or stop-gap solutions are not necessarily evil or wrong. Neither
relinquished pursuant to Clause 4.6 of the WMCP FTAA. [56] This clause, however, does
does it follow that the government will inexorably be aggrieved if and when these
not constitute abdication of control. Rather, it is a mere acknowledgment of the fact that
temporary remedies come into play. First, avoidance of long delays in these situations
the contractor will have determined, after appropriate exploration works, which portions
will undoubtedly redound to the benefit of the State as well as the contractor. Second,
of the contract area do not contain minerals in commercial quantities sufficient to justify
who is to say that the work program or budget proposed by the contractor and deemed
developing the same and ought therefore to be relinquished. The State cannot just
approved under Clause 8.3 would not be the better or more reasonable or more effective
substitute its judgment for that of the contractor and dictate upon the latter which areas to
alternative? The contractor, being the insider, as it were, may be said to be in a better
give up.
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. 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
All things considered, we take exception to the characterization of the DENR
relinquish as much non-mineral areas as soon as possible, because the annual occupation fees
secretary as a subservient nonentity whom the contractor can overrule at will, on account
paid to the government are based on the total hectarage of the contract area, net of the areas
of Clause 8.3. And neither is it true that under the same clause, the DENR secretary has
relinquished. Thus, the larger the remaining area, the heftier the amount of occupation fees to
no authority whatsoever to disapprove the work program. As Respondent WMCP
be paid by the contractor. Accordingly, relinquishment is not an issue, given that the
reasoned in its Reply-Memorandum, the State -- despite Clause 8.3 -- still has control
contractor will not want to pay the annual occupation fees on the non-mineral parts of its
over the contract area and it may, as sovereign authority, prohibit work thereon until the
contract area. Neither will it want to relinquish promising sites, which other contractors may
dispute is resolved. And ultimately, the State may terminate the agreement, pursuant to
subsequently pick up.
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 Government Not
flexibility, given that no one can accurately forecast under all circumstances, or predict a Subcontractor
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
49 of 111 – Envi Law Part III Cases
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.[58] Section 10.2(e) contemplates a situation applicable to foreign-owned
corporations. WMCP, at the time of the execution of the FTAA, was a foreign-owned
corporation and therefore not qualified to own land. As contractor, it has at some future
date to construct the infrastructure -- the mine processing plant, the camp site, the tailings
dam, and other infrastructure -- needed for the large-scale mining operations. It will then
have to identify and pinpoint, within the FTAA contract area, the particular surface areas
with favorable topography deemed ideal for such infrastructure and will need to acquire
the surface rights. The State owns the mineral deposits in the earth, and is also qualified
to own land.
Section 10.2(e) sets forth the mechanism whereby the foreign-owned contractor,
disqualified to own land, identifies to the government the specific surface areas within the
FTAA contract area to be acquired for the mine infrastructure. The government then
acquires ownership of the surface land areas on behalf of the contractor, in order to
enable the latter to proceed to fully implement the FTAA.
The contractor, of course, shoulders the purchase price of the land. Hence, the
provision allows it, after termination of the FTAA, to be reimbursed from proceeds of the
sale of the surface areas, which the government will dispose of through public bidding. It
should be noted that this provision will not be applicable to Sagittarius as the present
FTAA contractor, since it is a Filipino corporation qualified to own and hold land. As
such, it may therefore freely negotiate with the surface rights owners and acquire the
surface property in its own right.
Clearly, petitioners have needlessly jumped to unwarranted conclusions, without
being aware of the rationale for the said provision. That provision does not call for the
exercise of the power of eminent domain -- and determination of just compensation is not
an issue -- as much as it calls for a qualified party to acquire the surface rights on behalf
of a foreign-owned contractor.
Rather than having the foreign contractor act through a dummy corporation, having
the State do the purchasing is a better alternative. This will at least cause the government
to be aware of such transaction/s and foster transparency in the 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
50 of 111 – Envi Law Part III Cases
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
51 of 111 – Envi Law Part III Cases
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
52 of 111 – Envi Law Part III Cases
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
53 of 111 – Envi Law Part III Cases
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
54 of 111 – Envi Law Part III Cases
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
55 of 111 – Envi Law Part III Cases
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.
56 of 111 – Envi Law Part III Cases
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
57 of 111 – Envi Law Part III Cases
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).
58 of 111 – Envi Law Part III Cases
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 simplifiedillustration. 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.
59 of 111 – Envi Law Part III Cases
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,
60 of 111 – Envi Law Part III Cases
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
61 of 111 – Envi Law Part III Cases
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;
62 of 111 – Envi Law Part III Cases
(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 shareprovided 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
63 of 111 – Envi Law Part III Cases
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
64 of 111 – Envi Law Part III Cases
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.
65 of 111 – Envi Law Part III Cases
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
66 of 111 – Envi Law Part III Cases
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,
67 of 111 – Envi Law Part III Cases
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
68 of 111 – Envi Law Part III Cases
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
69 of 111 – Envi Law Part III Cases
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
70 of 111 – Envi Law Part III Cases
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
71 of 111 – Envi Law Part III Cases
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.
72 of 111 – Envi Law Part III Cases
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 miningbetween 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,
73 of 111 – Envi Law Part III Cases
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.
74 of 111 – Envi Law Part III Cases
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 institutionalizes the
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
75 of 111 – Envi Law Part III Cases

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.
76 of 111 – Envi Law Part III Cases
G.R. No. 152613 & No. 152628 June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication
board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, BALITE COMMUNAL PORTAL MINING COOPERATIVE,
DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-
BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA
CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO,
EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO
CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO,
JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and
joel brillantes management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20 June 23, 2006
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING
CO., INC., the mines adjudication board, provincial mining regulatory board
(PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA,
EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes
management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152870-71 June 23, 2006
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON.
VICTOR O. RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO
(Member) and DIRECTOR HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369,
establishing the Agusan-Davao-Surigao Forest Reserve consisting of approximately
1,927,400 hectares.1
The disputed area, a rich tract of mineral land, is inside the forest reserve located at
Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759
hectares.2 This mineral land is encompassed by Mt. Diwata, which is situated in the
municipalities of Monkayo and Cateel. It later became known as the "Diwalwal Gold
Rush Area." It has since the early 1980‘s been stormed by conflicts brought about by the
numerous mining claimants scrambling for gold that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL) for six
mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the
Balite Communal Portal Mining Cooperative (Balite).3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for mining
locations over mineral land covering certain parts of the Diwalwal gold rush area were
filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining
claims for areas adjacent to the area covered by the DOL of Banad and his group. After
realizing that the area encompassed by its mining claims is a forest reserve within the
coverage of Proclamation No. 369 issued by Governor General Davis, MMC abandoned
the same and instead applied for a prospecting permit with the Bureau of Forest
Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of
4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an area within
the forest reserve under Proclamation No. 369. The permit embraced the areas claimed by
Apex and the other individual mining claimants.
77 of 111 – Envi Law Part III Cases
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the
BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP
133).
Discovering the existence of several mining claims and the proliferation of small-scale
miners in the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG
a Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining
Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged
that the areas covered by its EP 133 and the mining claims of Apex were within an
established and existing forest reservation (Agusan-Davao-Surigao Forest Reserve) under
Proclamation No. 369 and that pursuant to Presidential Decree No. 463,4 acquisition of
mining rights within a forest reserve is through the application for a permit to prospect
with the BFD and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMC‘s petition alleging that its
mining claims are not within any established or proclaimed forest reserve, and as such,
the acquisition of mining rights thereto must be undertaken via registration of DOL with
the BMG and not through the filing of application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMC‘s petition on the ground that the area
covered by the Apex mining claims and MMC‘s permit to explore was not a forest
reservation. It further declared null and void MMC‘s EP 133 and sustained the validity of
Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural
Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of
BMG and declared MMC‘s EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied.
Apex then filed an appeal before the Office of the President. On 27 July 1989, the Office
of the President, through Assistant Executive Secretary for Legal Affairs, Cancio C.
Garcia,5 dismissed Apex‘s appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R.
No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991, this Court
rendered a Decision against Apex holding that the disputed area is a forest reserve; hence,
the proper procedure in acquiring mining rights therein is by initially applying for a
permit to prospect with the BFD and not through a registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department
Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered
by the Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale
mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale miners,
several mining entities filed applications for Mineral Production Sharing Agreement
(MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA)
filed an MPSA application which was denied by the BMG on the grounds that the area
applied for is within the area covered by MMC EP 133 and that the MISSMA was not
qualified to apply for an MPSA under DAO No. 82, 7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for
Cancellation of EP 133 and for the admission of their MPSA Application. The Petition
was docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative
(DUMC) and Balite intervened and likewise sought the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested
area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares
under EP 133, which was also denied by reason of the pendency of RED Mines Case No.
8-8-94. On 1 September 1995, SEM filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEM‘s MPSA application and the
Deed of Assignment over EP 133 executed in its favor by MMC. SEM‘s application was
designated MPSA Application No. 128 (MPSAA 128). After publication of SEM‘s
application, the following filed before the BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) – JB Management Mining Corporation;
b) MAC Case No. 005(XI) – Davao United Miners Cooperative;
c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner‘s Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner‘s
Association, Inc. (MISSMA);
78 of 111 – Envi Law Part III Cases
e) MAC Case No. 008(XI) – Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) – Antonio Dacudao;
h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) – Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) – Romeo Altamera, et al.8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the
following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED
Case No. 8-8-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the
Petition for Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex
Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and subsisting. It also
declared that the BMG Director, under Section 99 of the Consolidated Mines
Administrative Order implementing Presidential Decree No. 463, was authorized to issue
exploration permits and to renew the same without limit.
With respect to the adverse claims on SEM‘s MPSAA No. 128, the PA ruled that adverse
claimants‘ petitions were not filed in accordance with the existing rules and regulations
governing adverse claims because the adverse claimants failed to submit the sketch plan
containing the technical description of their respective claims, which was a mandatory
requirement for an adverse claim that would allow the PA to determine if indeed there is
an overlapping of the area occupied by them and the area applied for by SEM. It added
that the adverse claimants were not claim owners but mere occupants conducting illegal
mining activities at the contested area since only MMC or its assignee SEM had valid
mining claims over the area as enunciated in Apex Mining Co., Inc. v. Garcia. 11 Also, it
maintained that the adverse claimants were not qualified as small-scale miners under
DENR Department Administrative Order No. 34 (DAO No. 34),12 or the Implementing
Rules and Regulation of Republic Act No. 7076 (otherwise known as the "People‘s
Small-Scale Mining Act of 1991"), as they were not duly licensed by the DENR to
engage in the extraction or removal of minerals from the ground, and that they were
large-scale miners. The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit
No. 133 is hereby reiterated and all the adverse claims against MPSAA No. 128 are
DISMISSED.13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication
Board (MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the
dismissal by the PA of the adverse claims filed against MMC and SEM over a mere
technicality of failure to submit a sketch plan. It argued that the rules of procedure are not
meant to defeat substantial justice as the former are merely secondary in importance to
the latter. Dealing with the question on EP 133‘s validity, the MAB opined that said issue
was not crucial and was irrelevant in adjudicating the appealed case because EP 133 has
long expired due to its non-renewal and that the holder of the same, MMC, was no longer
a claimant of the Agusan-Davao-Surigao Forest Reserve having relinquished its right to
SEM. After it brushed aside the issue of the validity of EP 133 for being irrelevant, the
MAB proceeded to treat SEM‘s MPSA application over the disputed area as an entirely
new and distinct application. It approved the MPSA application, excluding the area
segregated by DAO No. 66, which declared 729 hectares within the Diwalwal area as
non-forest lands open for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators
dated 13 June 1997 is hereby VACATED and a new one entered in the records of the
case as follows:
1. SEM‘s MPSA application is hereby given due course subject to the full and
strict compliance of the provisions of the Mining Act and its Implementing
Rules and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively
mined by the small-scale miners on or before August 1, 1987 as determined by
the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the
area applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed
until such time that all necessary procedures, licenses, permits, and other
requisites as provided for by RA 7076, the Mining Act and its Implementing
Rules and Regulations and all other pertinent laws, rules and regulations are
complied with, and the appropriate environmental protection measures and
safeguards have been effectively put in place;
79 of 111 – Envi Law Part III Cases
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all
small-scale miners to continue to negotiate in good faith and arrive at an
agreement beneficial to all. In the event of SEM‘s strict and full compliance
with all the requirements of the Mining Act and its Implementing Rules and
Regulations, and the concurrence of the small-scale miners actually occupying
and actively mining the area, SEM may apply for the inclusion of portions of the
areas segregated under paragraph 2 hereof, to its MPSA application. In this
light, subject to the preceding paragraph, the contract between JB [JB
Management Mining Corporation] and SEM is hereby recognized. 14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM,
aggrieved by the exclusion of 729 hectares from its MPSA application, likewise
appealed. Apex filed a Motion for Leave to Admit Petition for Intervention predicated on
its right to stake its claim over the Diwalwal gold rush which was granted by the Court.
These cases, however, were remanded to the Court of Appeals for proper disposition
pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court of Appeals
consolidated the remanded cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the
decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by
virtue of its assignment of EP 133 in favor of SEM and the purported fact that SEM is a
100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that since
SEM is an agent of MMC, the assignment of EP 133 did not violate the condition therein
prohibiting its transfer except to MMC‘s duly designated agent. Thus, despite the non-
renewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant to declare EP
133 as valid since MMC‘s mining rights were validly transferred to SEM prior to its
expiration.
The Court of Appeals also ruled that MMC‘s right to explore under EP 133 is a property
right which the 1987 Constitution protects and which cannot be divested without the
holder‘s consent. It stressed that MMC‘s failure to proceed with the extraction and
utilization of minerals did not diminish its vested right to explore because its failure was
not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7,
and 8 of Presidential Decree No. 463, the Court of Appeals concluded that the issuance of
DAO No. 66 was done by the DENR Secretary beyond his power for it is the President
who has the sole power to withdraw from the forest reserve established under
Proclamation No. 369 as non-forest land for mining purposes. Accordingly, the
segregation of 729 hectares of mining areas from the coverage of EP 133 by the MAB
was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66
when he awarded the 729 hectares segregated from the coverage area of EP 133 to other
corporations who were not qualified as small-scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that their
failure to submit the sketch plan to the PA, which is a jurisdictional requirement, was
fatal to their appeal. It likewise stated the Villaflor and company‘s mining claims, which
were based on their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was
null and void. The dispositive portion of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining
Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for
lack of merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED
in toto and the assailed MAB Decision is hereby SET ASIDE and declared as NULL and
VOID.16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court
filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November 2002. This proclamation excluded an area of
8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as
mineral reservation and as environmentally critical area. Subsequently, DENR
Administrative Order No. 2002-18 was issued declaring an emergency situation in the
Diwalwal gold rush area and ordering the stoppage of all mining operations therein.
Thereafter, Executive Order No. 217 dated 17 June 2003 was issued by the President
creating the National Task Force Diwalwal which is tasked to address the situation in the
Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING‘S [SEM] E.P. 133
IS NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY
WITH THE TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO
STAKE IT‘S CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND
THE OTHER CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN
MINING LAW THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT."17
80 of 111 – Envi Law Part III Cases
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS
LATE (JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH
WAS FILED ON JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF
BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF
THE ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED
TO SUBMIT THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT
BALITE, HAD IN FACT SUBMITTED ON TIME WAS A VALID DISMISSAL OF
BALITE‘S ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING
OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES
WHICH WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS MPSA
WHICH WAS REJECTED BY THE BUREAU OF MINES AND GEOSCIENCES WAS
ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I acquire priority right over the area. MMC, Apex claims, failed to conduct the necessary
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS
THE ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE
ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE
CLAIMS OVER THE DIWALWAL GOLD RUSH AREA. 19
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex
and Balite‘s claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals‘ ruling upholding the
validity of MMC‘s EP 133 and its subsequent transfer to SEM asserting that MMC failed
to comply with the terms and conditions in its exploration permit, thus, MMC and its
successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex
pointed out that MMC violated four conditions in its permit. First, MMC failed to comply
with the mandatory work program, to complete exploration work, and to declare a mining
feasibility. Second, it reneged on its duty to submit an Environmental Compliance
Certificate. Third, it failed to comply with the reportorial requirements. Fourth, it violated
the terms of EP 133 when it assigned said permit to SEM despite the explicit proscription
against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under
DAO No. 8220 which caused its exploration permit to lapse because DAO No. 82
mandates holders of exploration permits to file a Letter of Intent and a MPSA application
not later than 17 July 1991. It said that because EP 133 expired prior to its assignment to
SEM, SEM‘s MPSA application should have been evaluated on its own merit.
As regards the Court of Appeals recognition of SEM‘s vested right over the disputed
area, Apex bewails the same to be lacking in statutory bases. According to Apex,
Presidential Decree No. 463 and Republic Act No. 7942 impose upon the claimant the
obligation of actually undertaking exploration work within the reserved lands in order to
exploration work, thus, MMC and its successor-in-interest SEM lost any right over the
area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of
SEM, is an expired and void permit which cannot be made the basis of SEM‘s MPSA
application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue
of the transfer of EP 133 because the transfer directly violates the express condition of
the exploration permit stating that "it shall be for the exclusive use and benefit of the
permittee or his duly authorized agents." It added that while MMC is the permittee, SEM
cannot be considered as MMC‘s duly designated agent as there is no proof on record
authorizing SEM to represent MMC in its business dealings or undertakings, and neither
did SEM pursue its interest in the permit as an agent of MMC. According to the MAB,
the assignment by MMC of EP 133 in favor of SEM did not make the latter the duly
81 of 111 – Envi Law Part III Cases
authorized agent of MMC since the concept of an agent under EP 133 is not equivalent to
the concept of assignee. It finds fault in the assignment of EP 133 which lacked the
approval of the DENR Secretary in contravention of Section 25 of Republic Act No.
794221 requiring his approval for a valid assignment or transfer of exploration permit to
be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and
the MAB relate to factual and evidentiary matters which this Court cannot inquire into in
an appeal by certiorari.
The established rule is that in the exercise of the Supreme Court‘s power of review, the
Court not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the Court of Appeals are conclusive and binding on the
Court.22 This rule, however, admits of exceptions as recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the Court
of Appeals went beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner‘s main and reply briefs are not disputed by the respondent; (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion.23
Also, in the case of Manila Electric Company v. Benamira, 24 the Court in a Petition for
Review on Certiorari, deemed it proper to look deeper into the factual circumstances of
the case since the Court of Appeal‘s findings are at odds to those of the National Labor
Relations Commission (NLRC). Just like in the foregoing case, it is this Court‘s
considered view that a re-evaluation of the attendant facts surrounding the present case is
appropriate considering that the findings of the MAB are in conflict with that of the Court
of Appeals.
I acted within his power in laying down the terms and conditions attendant thereto.
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under
EP 133 pursuant to a Deed of Assignment dated 16 February 1994. 25
EP 133 is subject to the following terms and conditions26 :
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and
accounting of all expenditures incurred therein subject to periodic inspection and
verification at reasonable intervals by the Bureau of Mines at the expense of the
applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after
the end of each calendar quarter a report under oath of a full and complete
statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines
and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of
its provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been incurred,
or as to other damages that might have been suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the permittee or
his duly authorized agents and shall be used for mineral exploration purposes
only and for no other purpose.
Under Section 9027 of Presidential Decree No. 463, the applicable statute during the
issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as "An
Act Creating The Bureau of Mines," which was approved on 7 November 1936, the
Director of Mines has the direct charge of the administration of the mineral lands and
minerals, and of the survey, classification, lease or any other form of concession or
disposition thereof under the Mining Act.28 This power of administration includes the
power to prescribe terms and conditions in granting exploration permits to qualified
entities. Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG
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
82 of 111 – Envi Law Part III Cases
evidence showing that the former is the duly authorized agent of the latter. For a contract
of agency to exist, it is essential that the principal consents that the other party, the agent,
shall act on its behalf, and the agent consents so as to act.29 In the case of Yu Eng Cho v.
Pan American World Airways, Inc.,30this Court had the occasion to set forth the elements
of agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or
proven by evidence. The burden of proving that agency is extant in a certain case rests in
the party who sets forth such allegation. This is based on the principle that he who alleges
a fact has the burden of proving it.31 It must likewise be emphasized that the evidence to
prove this fact must be clear, positive and convincing. 32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract
of agency actually exists between them so as to allow SEM to use and benefit from EP
133 as the agent of MMC. SEM did not claim nor submit proof that it is the designated
agent of MMC to represent the latter in its business dealings or undertakings. SEM
cannot, therefore, be considered as an agent of MMC which can use EP 133 and benefit
from it. Since SEM is not an authorized agent of MMC, it goes without saying that the
assignment or transfer of the permit in favor of SEM is null and void as it directly
contravenes the terms and conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts
not on his own behalf but on behalf of his principal. 33 While in assignment, there is total
transfer or relinquishment of right by the assignor to the assignee. 34 The assignee takes
the place of the assignor and is no longer bound to the latter. The deed of assignment
clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in
the area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as
Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan,
Agusan del Sur respectively.35
Bearing in mind the just articulated distinctions and the language of the Deed of
Assignment, it is readily obvious that the assignment by MMC of EP 133 in favor of
SEM did not make the latter the former‘s agent. Such assignment involved actual transfer
of all rights and obligations MMC have under the permit in favor of SEM, thus, making
SEM the permittee. It is not a mere grant of authority to SEM, as an agent of MMC, to
use the permit. It is a total abdication of MMC‘s rights over the permit. Hence, the
assignment in question did not make SEM the authorized agent of MMC to make use and
benefit from EP 133.
The condition stipulating that the permit is for the exclusive use of the permittee or its
duly authorized agent is not without any reason. Exploration permits are strictly granted
to entities or individuals possessing the resources and capability to undertake mining
operations. Without such a condition, non-qualified entities or individuals could
circumvent the strict requirements under the law by the simple expediency acquiring the
permit from the original permittee.
We cannot lend recognition to the Court of Appeals‘ theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.36 It is an artificial being invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any
other legal entity to which it may be related. 37 Resultantly, absent any clear proof to the
contrary, SEM is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to
legitimize the prohibited transfer or assignment of EP 133. It stresses that SEM is just a
business conduit of MMC, hence, the distinct legal personalities of the two entities
should not be recognized. True, the corporate mask may be removed when the
corporation is just an alter ego or a mere conduit of a person or of another
corporation.38 For reasons of public policy and in the interest of justice, the corporate veil
will justifiably be impaled only when it becomes a shield for fraud, illegality or inequity
committed against a third person.39 However, this Court has made a caveat in the
application of the doctrine of piercing the corporate veil. Courts should be mindful of the
milieu where it is to be applied. Only in cases where the corporate fiction was misused to
such an extent that injustice, fraud or crime was committed against another, in disregard
of its rights may the veil be pierced and removed. Thus, a subsidiary corporation may be
made to answer for the liabilities and/or illegalities done by the parent corporation if the
former was organized for the purpose of evading obligations that the latter may have
entered into. In other words, this doctrine is in place in order to expose and hold liable a
corporation which commits illegal acts and use the corporate fiction to avoid liability
from the said acts. The doctrine of piercing the corporate veil cannot therefore be used as
83 of 111 – Envi Law Part III Cases
a vehicle to commit prohibited acts because these acts are the ones which the doctrine
seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of
the permit in favor of SEM is utilized to circumvent the condition of non-transferability
of the exploration permit. To allow SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount to sanctioning illegal act which is what the
doctrine precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the
case, will, indeed, demonstrate the infraction committed by MMC in its assignment of EP
133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral
Resources Development Decree, which governed the old system of exploration,
development, and utilization of mineral resources through "license, concession or lease"
prescribed:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior approval of the
Secretary: Provided, That such transfer, assignment or sublease may be made only to a
qualified person possessing the resources and capability to continue the mining
operations of the lessee and that the assignor has complied with all the obligations of the
lease: Provided, further, That such transfer or assignment shall be duly registered with the
office of the mining recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995, which is the new law governing the exploration,
development and utilization of the natural resources, which provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned
to a qualified person subject to the approval of the Secretary upon the recommendation of
the Director.
The records are bereft of any indication that the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree No. 463, which is the governing law when
the assignment was executed, explicitly requires that the transfer or assignment of mining
rights, including the right to explore a mining area, must be with the prior approval of the
Secretary of DENR. Quite conspicuously, SEM did not dispute the allegation that the
Deed of Assignment was made without the prior approval of the Secretary of DENR.
Absent the prior approval of the Secretary of DENR, the assignment of EP 133, was,
therefore, without legal effect for violating the mandatory provision of Presidential
Decree No. 463.
An added significant omission proved fatal to MMC/SEM‘s cause. While it is true that
the case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which between Apex
and MMC validly acquired mining rights over the disputed area, such rights, though, had
been extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133
was extended for 12 months or until 6 July 1994. 41 MMC never renewed its permit prior
and after its expiration. Thus, EP 133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area. SEM, on the other hand, has not acquired any right to the said area because
the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have not
acquired any vested right over the 4,941.6759 hectares which used to be covered by EP
133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the
DENR Secretary since the power to withdraw lands from forest reserves and to declare
the same as an area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest
reserves as non-forest reserves is vested with the DENR Secretary. Proclamation No. 369
partly states:
From this reserve shall be considered automatically excluded all areas which had already
been certified and which in the future may be proclaimed as classified and certified lands
and approved by the Secretary of Agriculture and Natural Resources. 42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The
Mining Act" which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such
reservation is made, are found to be more valuable for their mineral contents than for the
purpose for which the reservation was made, may be withdrawn from such reservations
by the President with the concurrence of the National Assembly, and thereupon such
lands shall revert to the public domain and be subject to disposition under the provisions
of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President,
with the concurrence of the National Assembly, the power to withdraw forest reserves
found to be more valuable for their mineral contents than for the purpose for which the
reservation was made and convert the same into non-forest reserves. A similar provision
can also be found in Presidential Decree No. 463 dated 17 May 1974, with the
modifications that (1) the declaration by the President no longer requires the concurrence
84 of 111 – Envi Law Part III Cases
of the National Assembly and (2) the DENR Secretary merely exercises the power to
recommend to the President which forest reservations are to be withdrawn from the
coverage thereof. Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within
reservations, which have been established for purposes other than mining, are found to be
more valuable for their mineral contents, they may, upon recommendation of the
Secretary be withdrawn from such reservation by the President and established as a
mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No.
66, this Court is constrained to rule that said administrative order was issued not in
accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas
covered by the Agusan-Davao-Surigao Forest Reserve as non-forest land open to small-
scale mining operations, is null and void as, verily, the DENR Secretary has no power to
convert forest reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to
that of MMC or that of SEM because it was the first one to occupy and take possession of
the area and the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the
contested area, particularly in the 729 hectares small-scale mining area, has entitled it to
file its MPSA. Balite claims that its MPSA application should have been given preference
over that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the
disputed area has become moot and academic by the supervening events. By virtue of
Proclamation No. 297 dated 25 November 2002, the disputed area was declared a mineral
reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public
land situated in the then provinces of Davao, Agusan and Surigao, with an area of
approximately 1,927,400 hectares, were withdrawn from settlement and disposition,
excluding, however, those portions which had been certified and/or shall be classified and
certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No.
369, in the Municipality of Monkayo, Compostela Valley Province, and unregulated
small to medium-scale mining operations have, since 1983, been undertaken therein,
causing in the process serious environmental, health, and peace and order problems in the
area;
WHEREAS, it is in the national interest to prevent the further degradation of the
environment and to resolve the health and peace and order problems spawned by the
unregulated mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining
operations in the area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted
public hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and
communities to air their views regarding the establishment of a mineral reservation in the
place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President
may, upon the recommendation of the Director of Mines and Geosciences, through the
Secretary of Environment and Natural Resources, and when the national interest so
requires, establish mineral reservations where mining operations shall be undertaken by
the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between
socio-economic growth and environmental protection, the President may, pursuant to
Presidential Decree No. 1586, as amended, proclaim and declare certain areas in the
country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the
Philippines, upon recommendation of the Secretary of the Department of Environment
and Natural Resources (DENR), and by virtue of the powers vested in me by law, do
hereby exclude certain parcel of land located in Monkayo, Compostela Valley, and
proclaim the same as mineral reservation and as environmentally critical area, with metes
and bound as defined by the following geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining
operations in the area may be undertaken either by the DENR directly, subject to
payment of just compensation that may be due to legitimate and existing claimants, or
thru a qualified contractor, subject to existing rights, if any.
85 of 111 – Envi Law Part III Cases
The DENR shall formulate and issue the appropriate guidelines, including the
establishment of an environmental and social fund, to implement the intent and
provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in
the exploration, development and utilization of the natural resources of the
country.43 With this policy, the State may pursue full control and supervision of the
exploration, development and utilization of the country‘s natural mineral resources. The
options open to the State are through direct undertaking or by entering into co-
production, joint venture, or production-sharing agreements, or by entering into
agreement with foreign-owned corporations for large-scale exploration, development and
utilization.44 Thus, Article XII, Section 2, of the 1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as
may be provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations involving
either technical or financial assistance for large-scale exploration, development, and
utilization of minerals, petroleum, and other mineral oils according to the general terms
and conditions provided by law, based on real contributions to the economic growth and
general welfare of the country. x x x (Underscoring supplied.)
Recognizing the importance of the country‘s natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of
Republic Act No. 7942 empowers the President, when the national interest so requires, to
establish mineral reservations where mining operations shall be undertaken directly by
the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR Secretary
issued DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the
Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the
above subsequent developments particularly with the issuance of Proclamation 297 and
DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the
full control of the State through the executive branch. Pursuant to Section 5 of Republic
Act No. 7942, the State can either directly undertake the exploration, development and
utilization of the area or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the President
may establish mineral reservations upon the recommendation of the Director through the
Secretary. Mining operations in existing mineral reservations and such other reservations
as may thereafter be established, shall be undertaken by the Department or through a
contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to
undertake directly the mining operations of the Diwalwal Gold Rush Area. As already
ruled, the State may not be precluded from considering a direct takeover of the mines, if
it is the only plausible remedy in sight to the gnawing complexities generated by the gold
rush. The State need be guided only by the demands of public interest in settling on this
option, as well as its material and logistic feasibility. 45 The State can also opt to award
mining operations in the mineral reservation to private entities including petitioners Apex
and Balite, if it wishes. The exercise of this prerogative lies with the Executive
Department over which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are
PARTIALLY GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals,
dated 13 March 2002, and hereby declare that EP 133 of MMC has EXPIRED
on 7 July 1994 and that its subsequent transfer to SEM on 16 February 1994 is
VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision
declaring DAO No. 66 illegal for having been issued in excess of the DENR
Secretary‘s authority.
Consequently, the State, should it so desire, may now award mining operations in the
disputed area to any qualified entity it may determine. No costs.
SO ORDERED.
86 of 111 – Envi Law Part III Cases

THIRD DIVISION the Mt. Tapian pit had discharged millions of tons of tailings into the Boac and
Makalupnit rivers.

JOHN ERIC LONEY, G.R. No. 152644 In August 1996, the Department of Justice separately charged petitioners in the
STEVEN PAUL REID and Municipal Trial Court of Boac, Marinduque (MTC) with violation of Article
PEDRO B. HERNANDEZ, 91(B),[4] sub-paragraphs 5 and 6 of Presidential Decree No. 1067 or the Water Code of
Petitioners, Present: the Philippines (PD 1067),[5] Section 8[6] of Presidential Decree No. 984 or the National
Pollution Control Decree of 1976 (PD 984), [7] Section 108[8] of Republic Act No. 7942 or
QUISUMBING, J., Chairperson, the Philippine Mining Act of 1995 (RA 7942), [9] and Article 365[10] of the Revised Penal
CARPIO, Code (RPC) for Reckless Imprudence Resulting in Damage to Property. [11]
- versus - CARPIO MORALES, and Petitioners moved to quash the Informations on the following grounds: (1) the
TINGA, JJ. Informations were duplicitous as the Department of Justice charged more than one
PEOPLE OF THE PHILIPPINES, Promulgated: offense for a single act; (2) petitioners John Eric Loney and Steven Paul Reid were not
Respondent. February 10, 2006 yet officers of Marcopper when the incident subject of the Informations took place; and
(3) the Informations contain allegations which constitute legal excuse or justification.
x--------------------------------------------------x

DECISION

CARPIO, J.: The Ruling of the MTC

The Case
This is a petition for review[1] of the Decision[2] dated 5 November 2001 and the
Resolution dated 14 March 2002 of the Court of Appeals. The 5 November
2001 Decision affirmed the ruling of the Regional Trial Court, Boac, Marinduque,
Branch 94, in a suit to quash Informations filed against petitioners John Eric Loney,
Steven Paul Reid, and Pedro B. Hernandez (petitioners). The 14 March 2002 Resolution
denied petitioners motion for reconsideration.
The Facts
Petitioners John Eric Loney, Steven Paul Reid, and Pedro B. Hernandez are the President
and Chief Executive Officer, Senior Manager, and Resident Manager for Mining
Operations, respectively, of Marcopper Mining Corporation (Marcopper), a corporation
engaged in mining in the province of Marinduque.
Marcopper had been storing tailings[3] from its operations in a pit in Mt. Tapian,
Marinduque. At the base of the pit ran a drainage tunnel leading to the Boac and
Makalupnit rivers. It appears that Marcopper had placed a concrete plug at the tunnels
end. On 24 March 1994, tailings gushed out of or near the tunnels end. In a few days,
In its Joint Order of 16 January 1997 (Joint Order), the MTC[12] initially deferred ruling
on petitioners motion for lack of indubitable ground for the quashing of the
[I]nformations x x x. The MTC scheduled petitioners arraignment in February 1997.
However, on petitioners motion, the MTC issued a Consolidated Order on 28 April
1997(Consolidated Order), granting partial reconsideration to its Joint Order and
quashing the Informations for violation of PD 1067 and PD 984. The MTC maintained
the Informations for violation of RA 7942 and Article 365 of the RPC. The MTC held:
[T]he 12 Informations have common allegations of pollutants pointing
to mine tailings which were precipitately discharged into the
Makulapnit and Boac Rivers due to breach caused on the Tapian
drainage/tunnel due to negligence or failure to institute adequate
measures to prevent pollution and siltation of the Makulapnit and Boac
River systems, the very term and condition required to be undertaken
under the Environmental Compliance Certificate issued on April 1,
1990.
The allegations in the informations point to same set [sic] of evidence
required to prove the single fact of pollution constituting violation of
the Water Code and the Pollution Law which are the same set of
evidence necessary to prove the same single fact of pollution, in
proving the elements constituting violation of the conditions of ECC,
issued pursuant to the Philippine Mining Act.In both instances, the
terms and conditions of the Environmental Compliance Certificate
87 of 111 – Envi Law Part III Cases
were allegedly violated. In other words, the same set of evidence is
required in proving violations of the three (3) special laws.
After carefully analyzing and weighing the contending arguments of
the parties and after taking into consideration the applicable laws and
jurisprudence, the Court is convinced that as far as the three (3)
aforesaid laws are concerned, only the Information for [v]iolation of
Philippine Mining Act should be maintained. In other words, the
Informations for [v]iolation of Anti-Pollution Law (PD 984) and the
Water Code (PD 1067) should be dismissed/quashed because the
elements constituting the aforesaid violations are absorbed by the same
elements which constitute violation of the Philippine Mining Act (RA
7942).
Therefore, x x x Criminal Case[] Nos. 96-44, 96-45 and 96-46 for
[v]iolation of the Water Code; and Criminal Case[] Nos. 96-47, 96-48
and 96-49 for [v]iolation of the Anti-Pollution Law x x x are hereby
DISMISSED or QUASHED and Criminal Case[] Nos. 96-50, 96-51
and 96-52 for [v]iolation of the Philippine Mining Act are hereby
retained to be tried on the merits.
The Information for [v]iolation of Article 365 of the Revised Penal
Code should also be maintained and heard in a full blown trial because
the common accusation therein is reckless imprudence resulting to
[sic] damage to property. It is the damage to property which the law
punishes not the negligent act of polluting the water system. The
prosecution for the [v]iolation of Philippine Mining Act is not a bar to
the prosecution for reckless imprudence resulting to [sic] damage to
property.[13]
The MTC re-scheduled petitioners arraignment on the remaining charges on 28 and 29
May 1997. In the hearing of 28 May 1997, petitioners manifested that they were willing
to be arraigned on the charge for violation of Article 365 of the RPC but not on the
charge for violation of RA 7942 as they intended to appeal the Consolidated Order in so
far as it maintained the Informations for that offense. After making of record petitioners
manifestation, the MTC proceeded with the arraignment and ordered the entry of not
guilty pleas on the charges for violation of RA 7942 and Article 365 of the RPC.
Petitioners subsequently filed a petition for certiorari with the Regional Trial Court,
Boac, Marinduque, assailing that portion of the Consolidated Order maintaining the
Informations for violation of RA 7942. Petitioners petition was raffled to Branch 94. For
its part, public respondent filed an ordinary appeal with the same court assailing that
portion of the Consolidated Order quashing the Informations for violation of PD 1067
and PD 984. Public respondents appeal was raffled to Branch 38. On public respondents
motion, Branch 38 ordered public respondents appeal consolidated with petitioners
petition in Branch 94.
The Ruling of Branch 94
In its Resolution[14] of 20 March 1998, Branch 94 granted public respondents appeal but
denied petitioners petition. Branch 94 set aside the Consolidated Order in so far as it
quashed the Informations for violation of PD 1067 and PD 984 and ordered those charges
reinstated. Branch 94 affirmed the Consolidated Order in all other respects. Branch 94
held:
After a careful perusal of the laws concerned, this court is of the
opinion that there can be no absorption by one offense of the three
other offenses, as [the] acts penalized by these laws are separate and
distinct from each other. The elements of proving each violation are not
the same with each other. Concededly, the single act of dumping mine
tailings which resulted in the pollution of the Makulapnit and Boac
rivers was the basis for the information[s] filed against the accused
each charging a distinct offense. But it is also a well-established rule in
this jurisdiction that
A single act may offend against two or more entirely
distinct and unrelated provisions of law, and if one
provision requires proof of an additional fact or
element which the other does not, an acquittal or
conviction or a dismissal of the information under one
does not bar prosecution under the other. x x x.
xxxx
[T]he different laws involve cannot absorb one another as the elements
of each crime are different from one another. Each of these laws
require [sic] proof of an additional fact or element which the other
does not although they stemmed from a single act. [15]
Petitioners filed a petition for certiorari with the Court of Appeals alleging that Branch 94
acted with grave abuse of discretion because (1) the Informations for violation of PD
1067, PD 984, RA 7942 and the Article 365 of the RPC proceed from and are based on a
single act or incident of polluting the Boac and Makalupnit rivers thru dumping of mine
tailings and (2) the duplicitous nature of the Informations contravenes the ruling
in People v. Relova.[16] Petitioners further contended that since the acts complained of in
the charges for violation of PD 1067, PD 984, and RA 7942 are the very same acts
88 of 111 – Envi Law Part III Cases

complained of in the charge for violation of Article 365 of the RPC, the latter absorbs the each crime are different. Each of these laws require [sic] proof of an
former. Hence, petitioners should only be prosecuted for violation of Article 365 of the additional fact or element which the other does not, although they
RPC.[17] stemmed from a single act. x x x

The Ruling of the Court of Appeals
In its Decision of 5 November 2001, the Court of Appeals affirmed Branch 94s ruling.
The appellate court held:
The records of the case disclose that petitioners filed a motion to quash
the aforementioned Informations for being duplicitous in
nature. Section 3 of Rule 117 of the Revised Rules of Court specifically
provides the grounds upon which an information may be quashed. x x x
xxxx
xxxx
[T]his Court finds that there is not even the slightest indicia of evidence
that would give rise to any suspicion that public respondent acted with
grave abuse of discretion amounting to excess or lack of jurisdiction in
reversing the Municipal Trial Courts quashal of the Informations
against the petitioners for violation of P.D. 1067 and P.D. 984. This
Court equally finds no error in the trial courts denial of the petitioners
motion to quash R.A. 7942 and Article 365 of the Revised Penal
Code.[18]
Petitioners sought reconsideration but the Court of Appeals denied their motion in its
Resolution of 14 March 2002.

[D]uplicity of Informations is not among those included in x x x Petitioners raise the following alleged errors of the Court of Appeals:
[Section 3, Rule 117].
I. THE COURT OF APPEALS COMMITTED A R[E]VERSIBLE
xxxx ERROR IN MAINTAINING THE CHARGES FOR VIOLATION OF
We now go to petitioners claim that the resolution of the THE PHILIPPINE MINING ACT (R.A. 7942) AND REINSTATING
public respondent contravened the doctrine laid down in People vs. THE CHARGES FOR VIOLATION OF THE WATER CODE (P.D.
Relova for being violative of their right against multiple prosecutions. 1067) AND POLLUTION CONTROL LAW (P.D. 984),
CONSIDERING THAT:
In the said case, the Supreme Court found the Peoples argument with
respect to the variances in the mens rea of the two offenses being A. THE INFORMATIONS FOR VIOLATION OF
charged to be correct. The Court, however, decided the case in the THE WATER CODE (P.D. 1067), THE
context of the second sentence of Article IV (22) of the 1973 POLLUTION CONTROL LAW (P.D. 984), THE
Constitution (now under Section 21 of Article III of the 1987 PHILIPPINE MINING ACT (R.A. 7942) AND
Constitution), rather than the first sentence of the same section. x x x ARTICLE 365 OF THE REVISED PENAL CODE
PROCEED FROM AND ARE BASED ON A
xxxx SINGLE ACT OR INCIDENT OF POLLUTING
THE BOAC AND MAKULAPNIT RIVERS THRU
[T]he doctrine laid down in the Relova case does not squarely apply to DUMPING OF MINE TAILINGS.
the case at Bench since the Informations filed against the petitioners are B. THE PROSECUTION OF PETITIONERS FOR
for violation of four separate and distinct laws which are national in DUPLICITOUS AND MULTIPLE CHARGES
character. CONTRAVENES THE DOCTRINE LAID DOWN
IN PEOPLE VS. RELOVA, 148 SCRA 292 [1986]
xxxx THAT AN ACCUSED SHOULD NOT BE
HARASSED BY MULTIPLE PROSECUTIONS
This Court firmly agrees in the public respondents FOR OFFENSES WHICH THOUGH DIFFERENT
understanding that the laws by which the petitioners have been FROM ONE ANOTHER ARE NONETHELESS
[charged] could not possibly absorb one another as the elements of EACH CONSTITUTED BY A COMMON SET OR
89 of 111 – Envi Law Part III Cases
OVERLAPPING SETS OF TECHNICAL
ELEMENTS.
II. THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN RULING THAT THE ELEMENT OF LACK OF
NECESSARY OR ADEQUATE PRECAUTION, NEGLIGENCE,
RECKLESSNESS AND IMPRUDENCE UNDER ARTICLE 356 [sic]
OF THE REVISED PENAL CODE DOES NOT FALL WITHIN THE
AMBIT OF ANY OF THE ELEMENTS OF THE PERTINENT
PROVISIONS OF THE WATER CODE, POLLUTION CONTROL
LAW AND PHILIPPINE MINING ACT CHARGED AGAINST
PETITIONERS[.][19]
The Issues
The petition raises these issues:
(1) Whether all the charges filed against petitioners except one should be
quashed for duplicity of charges and only the charge for Reckless
Imprudence Resulting in Damage to Property should stand; and
(2) Whether Branch 94s ruling, as affirmed by the Court of Appeals,
contravenes People v. Relova.
The Ruling of the Court
The petition has no merit.
No Duplicity of Charges in the Present Case
Duplicity of charges simply means a single complaint or information charges more than
one offense, as Section 13 of Rule 110[20] of the 1985 Rules of Criminal Procedure
clearly states:
Duplicity of offense. A complaint or information must charge but
one offense, except only in those cases in which existing laws prescribe a
single punishment for various offenses.
In short, there is duplicity (or multiplicity) of charges when a single Information
charges more than one offense.[21]
Under Section 3(e), Rule 117[22] of the 1985 Rules of Criminal Procedure,
duplicity of offenses in a single information is a ground to quash the Information. The
Rules prohibit the filing of such Information to avoid confusing the accused in preparing
his defense.[23] Here, however, the prosecution charged each petitioner with four offenses,
with each Information charging only one offense. Thus, petitioners erroneously invoke
duplicity of charges as a ground to quash the Informations. On this score alone, the
petition deserves outright denial.
The Filing of Several Charges is Proper
Petitioners contend that they should be charged with one offense only Reckless
Imprudence Resulting in Damage to Property because (1) all the charges filed against
them proceed from and are based on a single act or incident of polluting the Boac and
Makalupnit rivers thru dumping of mine tailings and (2) the charge for violation of
Article 365 of the RPC absorbs the other charges since the element of lack of necessary
or adequate protection, negligence, recklessness and imprudence is common among
them.
The contention has no merit.
As early as the start of the last century, this Court had ruled that a single act or
incident might offend against two or more entirely distinct and unrelated provisions of
law thus justifying the prosecution of the accused for more than one offense. [24] The only
limit to this rule is the Constitutional prohibition that no person shall be twice put in
jeopardy of punishment for the same offense.[25] In People v. Doriquez,[26] we held that
two (or more) offenses arising from the same act are not the same
x x x if one provision [of law] requires proof of an additional fact or
element which the other does not, x x x. Phrased elsewise, where two
different laws (or articles of the same code) define two crimes, prior
jeopardy as to one of them is no obstacle to a prosecution of the other,
although both offenses arise from the same facts, if each crime
involves some important act which is not an essential element of the
other.[27] (Emphasis supplied)
Here, double jeopardy is not at issue because not all of its elements are
present.[28] However, for the limited purpose of controverting petitioners claim that they
should be charged with one offense only, we quote with approval Branch 94s
comparative analysis of PD 1067, PD 984, RA 7942, and Article 365 of the RPC showing
that in each of these laws on which petitioners were charged, there is one essential
element not required of the others, thus:
In P.D. 1067 (Philippines Water Code), the additional element to be
established is the dumping of mine tailings into the Makulapnit River
and the entire Boac River System without prior permit from the
authorities concerned. The gravamen of the offense here is the absence
of the proper permit to dump said mine tailings. This element is not
indispensable in the prosecution for violation of PD 984 (Anti-
Pollution Law), [RA] 7942 (Philippine Mining Act) and Art. 365 of the
Revised Penal Code. One can be validly prosecuted for violating the
Water Code even in the absence of actual pollution, or even [if] it has
complied with the terms of its Environmental Compliance Certificate,
90 of 111 – Envi Law Part III Cases
or further, even [if] it did take the necessary precautions to prevent
damage to property.
In P.D. 984 (Anti-Pollution Law), the additional fact that must be
proved is the existence of actual pollution. The gravamen is the
pollution itself. In the absence of any pollution, the accused must be
exonerated under this law although there was unauthorized dumping of
mine tailings or lack of precaution on its part to prevent damage to
property.
In R.A. 7942 (Philippine Mining Act), the additional fact that must be
established is the willful violation and gross neglect on the part of the
accused to abide by the terms and conditions of the Environmental
Compliance Certificate, particularly that the Marcopper should ensure
the containment of run-off and silt materials from reaching the Mogpog
and Boac Rivers. If there was no violation or neglect, and that the
accused satisfactorily proved [sic] that Marcopper had done everything
to ensure containment of the run-off and silt materials, they will not be
liable. It does not follow, however, that they cannot be prosecuted under
the Water Code, Anti-Pollution Law and the Revised Penal Code
because violation of the Environmental Compliance Certificate is not an
essential element of these laws.
On the other hand, the additional element that must be established in
Art. 365 of the Revised Penal Code is the lack of necessary or adequate
precaution, negligence, recklessness and imprudence on the part of the
accused to prevent damage to property. This element is not required
under the previous laws. Unquestionably, it is different from dumping of
mine tailings without permit, or causing pollution to the Boac river
system, much more from violation or neglect to abide by the terms of
the Environmental Compliance Certificate. Moreover, the offenses
punished by special law are mal[a] prohibita in contrast with those
punished by the Revised Penal Code which are mala in se.[29]
Consequently, the filing of the multiple charges against petitioners, although based on the
same incident, is consistent with settled doctrine.
On petitioners claim that the charge for violation of Article 365 of the RPC absorbs the
charges for violation of PD 1067, PD 984, and RA 7942, suffice it to say that a mala in
se felony (such as Reckless Imprudence Resulting in Damage to Property) cannot
absorb mala prohibita crimes (such as those violating PD 1067, PD 984, and RA 7942).
What makes the former a felony is criminal intent (dolo) or negligence (culpa); what
makes the latter crimes are the special laws enacting them.
People v. Relova not in Point
Petitioners reiterate their contention in the Court of Appeals that their prosecution
contravenes this Courts ruling in People v. Relova. In particular, petitioners cite the
Courts statement in Relova that the law seeks to prevent harassment of the accused by
multiple prosecutions for offenses which though different from one another are
nonetheless each constituted by a common set or overlapping sets of technical elements.
This contention is also without merit.
The issue in Relova is whether the act of the Batangas Acting City Fiscal in
charging one Manuel Opulencia (Opulencia) with theft of electric power under the RPC,
after the latter had been acquitted of violating a City Ordinance penalizing the
unauthorized installation of electrical wiring, violated Opulencias right against double
jeopardy. We held that it did, not because the offenses punished by those two laws were
the same but because the act giving rise to the charges was punished by an ordinance and
a national statute, thus falling within the proscription against multiple prosecutions for
the same act under the second sentence in Section 22, Article IV of the 1973
Constitution, now Section 21, Article III of the 1987 Constitution. We held:
The petitioner concludes that:
The unauthorized installation punished by the ordinance
[of Batangas City] is not the same as theft of electricity [under the
Revised Penal Code]; that the second offense is not an attempt to
commit the first or a frustration thereof and that the second offense is
not necessarily included in the offense charged in the first information.
The above argument[ ] made by the petitioner [is] of
course correct. This is clear both from the express terms of the
constitutional provision involved which reads as follows:
No person shall be twice put in jeopardy of punishment for the
same offense. If an act is punished by a law and an ordinance, conviction
or acquittal under either shall constitute a bar to another prosecution for
the same act. x x x
and from our case law on this point. The basic difficulty with the
petitioners position is that it must be examined, not under the terms
of the first sentence of Article IV (22) of the 1973 Constitution, but
rather under the second sentence of the same section. The first
sentence of Article IV (22) sets forth the general rule: the constitutional
protection against double jeopardy is not available where the second
prosecution is for an offense that is different from the offense charged in
91 of 111 – Envi Law Part III Cases

the first or prior prosecution, although both the first and second offenses
may be based upon the same act or set of acts. The second sentence of
Article IV (22) embodies an exception to the general proposition:
the constitutional protection, against double jeopardy isavailable
although the prior offense charged under an ordinance be different
from the offense charged subsequently under a national statute such
as the Revised Penal Code, providedthat both offenses spring from
the same act or set of acts. x x x[30] (Italicization in the original;
boldfacing supplied)

Thus, Relova is no authority for petitioners claim against multiple prosecutions based on
a single act not only because the question of double jeopardy is not at issue here, but also
because, as the Court of Appeals held, petitioners are being prosecuted for an act or
incident punished by four national statutes and not by an ordinance and a national statute.
In short, petitioners, if ever, fall under the first sentence of Section 21, Article III which
prohibits multiple prosecution for the same offense, and not, as in Relova, for offenses
arising from the same incident.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 5 November

2001 and the Resolution dated 14 March 2002 of the Court of Appeals.

SO ORDERED.

Note: Medusa Opinion; separate file – 12 pages

92 of 111 – Envi Law Part III Cases
EN BANC
[G.R. No. 135385. December 6, 2000]
ISAGANI CRUZ and CESAR EUROPA, petitioners, vs. SECRETARY OF
ENVIRONMENT AND NATURAL RESOURCES, SECRETARY OF
BUDGET AND MANAGEMENT and CHAIRMAN and
COMMISSIONERS OF THE NATIONAL COMMISSION ON
INDIGENOUS PEOPLES, respondents.
HON. JUAN M .FLAVIER, HON. PONCIANO BENNAGEN, BAYANI
ASCARRAGA, EDTAMI MANSAYANGAN, BASILIO WANDAG,
EVELYN DUNUAN, YAOM TUGAS, ALFREMO CARPIANO,
LIBERATO A. GABIN, MATERNIDAD M. COLAS, NARCISA M.
DALUPINES, BAI KIRAM-CONNIE SATURNO, BAE MLOMO-
BEATRIZ T. ABASALA, DATU BALITUNGTUNG-ANTONIO D.
LUMANDONG, DATU MANTUMUKAW TEOFISTO SABASALES,
DATU EDUAARDO BANDA, DATU JOEL UNAD, DATU RAMON
BAYAAN, TIMUAY JOSE ANOY, TIMUAY MACARIO D. SALACAO,
TIMUAY EDWIN B. ENDING, DATU SAHAMPONG MALANAW VI,
DATU BEN PENDAO CABIGON, BAI NANAPNAY-LIZA SAWAY, BAY
INAY DAYA-MELINDA S. REYMUNDO, BAI TINANGHAGA
HELINITA T. PANGAN, DATU MAKAPUKAW ADOLINO L. SAWAY,
DATU MAUDAYAW-CRISPEN SAWAY, VICKY MAKAY, LOURDES
D. AMOS, GILBERT P. HOGGANG, TERESA GASPAR, MANUEL S.
ONALAN, MIA GRACE L. GIRON, ROSEMARIE G. PE, BENITO
CARINO, JOSEPH JUDE CARANTES, LYNETTE CARANTES-VIVAL,
LANGLEY SEGUNDO, SATUR S. BUGNAY, CARLING DOMULOT,
ANDRES MENDIOGRIN, LEOPOLDO ABUGAN, VIRGILIO
CAYETANO, CONCHITA G. DESCAGA, LEVY ESTEVES, ODETTE G.
ESTEVEZ, RODOLFO C. AGUILAR, MAURO VALONES, PEPE H.
ATONG, OFELIA T. DAVI, PERFECTO B. GUINOSAO, WALTER N.
TIMOL, MANUEL T. SELEN, OSCAR DALUNHAY, RICO O.
SULATAN, RAFFY MALINDA, ALFREDO ABILLANOS, JESSIE
ANDILAB, MIRLANDO H. MANGKULINTAS, SAMIE SATURNO,
ROMEO A. LINDAHAY, ROEL S. MANSANG-CAGAN, PAQUITO S.
LIESES, FILIPE G. SAWAY, HERMINIA S. SAWAY, JULIUS S.
SAWAY, LEONARDA SAWAY, JIMMY UGYUB, SALVADOR
TIONGSON, VENANCIO APANG, MADION MALID, SUKIM MALID,
NENENG MALID, MANGKATADONG AUGUSTO DIANO,
JOSEPHINE M. ALBESO, MORENO MALID, MARIO MANGCAL,
FELAY DIAMILING, SALOME P. SARZA, FELIPE P. BAGON,
SAMMY SALNUNGAN, ANTONIO D. EMBA, NORMA
MAPANSAGONOS, ROMEO SALIGA, SR., JERSON P. GERADA,
RENATO T. BAGON, JR., SARING MASALONG, SOLEDAD M.
GERARDA, ELIZABETH L. MENDI, MORANTE S. TIWAN, DANILO
M. MALUDAO, MINORS MARICEL MALID, represented by her father
CORNELIO MALID, MARCELINO M. LADRA, represented by her
father MONICO D. LADRA, JENNYLYN MALID, represented by her
father TONY MALID, ARIEL M. EVANGELISTA, represented by her
mother LINAY BALBUENA, EDWARD M. EMUY, SR., SUSAN
BOLANIO, OND, PULA BATO BLAAN TRIBAL FARMERS
ASSOCIATION, INTER-PEOPLES EXCHANGE, INC. and GREEN
FORUM-WESTERN VISAYAS, intervenors.
COMMISSION ON HUMAN RIGHTS, intervenor.
IKALAHAN INDIGENOUS PEOPLE and HARIBON FOUNDATION FOR THE
CONSERVATION OF NATURAL RESOURCES, INC., intervenor.
RESOLUTION
PER CURIAM:
Petitioners Isagani Cruz and Cesar Europa brought this suit for prohibition and
mandamus as citizens and taxpayers, assailing the constitutionality of certain provisions
of Republic Act No. 8371 (R.A. 8371), otherwise known as the Indigenous Peoples
Rights Act of 1997 (IPRA), and its Implementing Rules and Regulations (Implementing
Rules).
In its resolution of September 29, 1998, the Court required respondents to
comment.[1] In compliance, respondents Chairperson and Commissioners of the National
Commission on Indigenous Peoples (NCIP), the government agency created under the
IPRA to implement its provisions, filed on October 13, 1998 their Comment to the
Petition, in which they defend the constitutionality of the IPRA and pray that the petition
be dismissed for lack of merit.
On October 19, 1998, respondents Secretary of the Department of Environment and
Natural Resources (DENR) and Secretary of the Department of Budget and Management
(DBM) filed through the Solicitor General a consolidated Comment. The Solicitor
General is of the view that the IPRA is partly unconstitutional on the ground that it grants
ownership over natural resources to indigenous peoples and prays that the petition be
granted in part.
On November 10, 1998, a group of intervenors, composed of Sen. Juan Flavier, one
of the authors of the IPRA, Mr. Ponciano Bennagen, a member of the 1986 Constitutional
Commission, and the leaders and members of 112 groups of indigenous peoples (Flavier,
93 of 111 – Envi Law Part III Cases
et. al), filed their Motion for Leave to Intervene. They join the NCIP in defending the
constitutionality of IPRA and praying for the dismissal of the petition.
On March 22, 1999, the Commission on Human Rights (CHR) likewise filed a
Motion to Intervene and/or to Appear as Amicus Curiae. The CHR asserts that IPRA is
an expression of the principle of parens patriae and that the State has the responsibility to
protect and guarantee the rights of those who are at a serious disadvantage like
indigenous peoples. For this reason it prays that the petition be dismissed.
On March 23, 1999, another group, composed of the Ikalahan Indigenous People
and the Haribon Foundation for the Conservation of Natural Resources, Inc. (Haribon, et
al.), filed a motion to Intervene with attached Comment-in-Intervention. They agree with
the NCIP and Flavier, et al. that IPRA is consistent with the Constitution and pray that
the petition for prohibition and mandamus be dismissed.
The motions for intervention of the aforesaid groups and organizations were
granted.
Oral arguments were heard on April 13, 1999. Thereafter, the parties and
intervenors filed their respective memoranda in which they reiterate the arguments
adduced in their earlier pleadings and during the hearing.
Petitioners assail the constitutionality of the following provisions of the IPRA and
its Implementing Rules on the ground that they amount to an unlawful deprivation of the
States ownership over lands of the public domain as well as minerals and other natural
resources therein, in violation of the regalian doctrine embodied in Section 2, Article XII
of the Constitution:
(1) Section 3(a) which defines the extent and coverage of ancestral domains,
and Section 3(b) which, in turn, defines ancestral lands;
(2) Section 5, in relation to section 3(a), which provides that ancestral domains
including inalienable public lands, bodies of water, mineral and other
resources found within ancestral domains are private but community
property of the indigenous peoples;
(3) Section 6 in relation to section 3(a) and 3(b) which defines the composition
of ancestral domains and ancestral lands;
(4) Section 7 which recognizes and enumerates the rights of the indigenous
peoples over the ancestral domains;
(5) Section 8 which recognizes and enumerates the rights of the indigenous
peoples over the ancestral lands;
(6) Section 57 which provides for priority rights of the indigenous peoples in
the harvesting, extraction, development or exploration of minerals and
other natural resources within the areas claimed to be their ancestral
domains, and the right to enter into agreements with nonindigenous
peoples for the development and utilization of natural resources therein for
a period not exceeding 25 years, renewable for not more than 25 years; and
(7) Section 58 which gives the indigenous peoples the responsibility to
maintain, develop, protect and conserve the ancestral domains and portions
thereof which are found to be necessary for critical watersheds, mangroves,
wildlife sanctuaries, wilderness, protected areas, forest cover or
reforestation.[2]
Petitioners also content that, by providing for an all-encompassing definition of
ancestral domains and ancestral lands which might even include private lands found
within said areas, Sections 3(a) and 3(b) violate the rights of private landowners. [3]
In addition, petitioners question the provisions of the IPRA defining the powers and
jurisdiction of the NCIP and making customary law applicable to the settlement of
disputes involving ancestral domains and ancestral lands on the ground that these
provisions violate the due process clause of the Constitution. [4]
These provisions are:
(1) sections 51 to 53 and 59 which detail the process of delineation and
recognition of ancestral domains and which vest on the NCIP the sole
authority to delineate ancestral domains and ancestral lands;
(2) Section 52[i] which provides that upon certification by the NCIP that a
particular area is an ancestral domain and upon notification to the
following officials, namely, the Secretary of Environment and Natural
Resources, Secretary of Interior and Local Governments, Secretary of
Justice and Commissioner of the National Development Corporation, the
jurisdiction of said officials over said area terminates;
(3) Section 63 which provides the customary law, traditions and practices of
indigenous peoples shall be applied first with respect to property rights,
claims of ownership, hereditary succession and settlement of land disputes,
and that any doubt or ambiguity in the interpretation thereof shall be
resolved in favor of the indigenous peoples;
(4) Section 65 which states that customary laws and practices shall be used to
resolve disputes involving indigenous peoples; and
(5) Section 66 which vests on the NCIP the jurisdiction over all claims and
disputes involving rights of the indigenous peoples. [5]
Finally, petitioners assail the validity of Rule VII, Part II, Section 1 of the NCIP
Administrative Order No. 1, series of 1998, which provides that the administrative
relationship of the NCIP to the Office of the President is characterized as a lateral but
autonomous relationship for purposes of policy and program coordination. They contend
that said Rule infringes upon the Presidents power of control over executive departments
under Section 17, Article VII of the Constitution. [6]
94 of 111 – Envi Law Part III Cases

Petitioners pray for the following: As the votes were equally divided (7 to 7) and the necessary majority was not
obtained, the case was redeliberated upon. However, after redeliberation, the voting
(1) A declaration that Sections 3, 5, 6, 7, 8, 52[I], 57, 58, 59, 63, 65 and 66 and remained the same.Accordingly, pursuant to Rule 56, Section 7 of the Rules of Civil
other related provisions of R.A. 8371 are unconstitutional and invalid; Procedure, the petition is DISMISSED.
(2) The issuance of a writ of prohibition directing the Chairperson and Attached hereto and made integral parts thereof are the separate opinions of Justices
Commissioners of the NCIP to cease and desist from implementing the Puno, Vitug, Kapunan, Mendoza, and Panganiban.
assailed provisions of R.A. 8371 and its Implementing Rules;
SO ORDERED.
(3) The issuance of a writ of prohibition directing the Secretary of the
Department of Environment and Natural Resources to cease and desist Davide, Jr., C.J., Bellosillo, Melo, Quisumbing, Pardo, Buena, Gonzaga-Reyes,
from implementing Department of Environment and Natural Resources Ynares-Santiago, and De Leon, Jr., JJ., concur.
Circular No. 2, series of 1998; Puno, Vitug, Kapunan, Mendoza and Panganiban JJ., see separate opinion
(4) The issuance of a writ of prohibition directing the Secretary of Budget and
Management to cease and desist from disbursing public funds for the Note: Old Case on Indigenous People (important points under separate opinions; refer to
implementation of the assailed provisions of R.A. 8371; and old copy of the case)
(5) The issuance of a writ of mandamus commanding the Secretary of
Environment and Natural Resources to comply with his duty of carrying
out the States constitutional mandate to control and supervise the
exploration, development, utilization and conservation of Philippine
natural resources.[7]
After due deliberation on the petition, the members of the Court voted as follows:
Seven (7) voted to dismiss the petition. Justice Kapunan filed an opinion, which the
Chief Justice and Justices Bellosillo, Quisumbing, and Santiago join, sustaining the
validity of the challenged provisions of R.A. 8371. Justice Puno also filed a separate
opinion sustaining all challenged provisions of the law with the exception of Section 1,
Part II, Rule III of NCIP Administrative Order No. 1, series of 1998, the Rules and
Regulations Implementing the IPRA, and Section 57 of the IPRA which he contends
should be interpreted as dealing with the large-scale exploitation of natural resources and
should be read in conjunction with Section 2, Article XII of the 1987 Constitution. On the
other hand, Justice Mendoza voted to dismiss the petition solely on the ground that it
does not raise a justiciable controversy and petitioners do not have standing to question
the constitutionality of R.A. 8371.
Seven (7) other members of the Court voted to grant the petition. Justice
Panganiban filed a separate opinion expressing the view that Sections 3 (a)(b), 5, 6, 7
(a)(b), 8, and related provisions of R.A. 8371 are unconstitutional. He reserves judgment
on the constitutionality of Sections 58, 59, 65, and 66 of the law, which he believes must
await the filing of specific cases by those whose rights may have been violated by the
IPRA. Justice Vitug also filed a separate opinion expressing the view that Sections 3(a),
7, and 57 of R.A. 8371 are unconstitutional.Justices Melo, Pardo, Buena, Gonzaga-
Reyes, and De Leon join in the separate opinions of Justices Panganiban and Vitug.
95 of 111 – Envi Law Part III Cases
SECOND DIVISION
G.R. No. 179669, June 04, 2014
SR METALS, INC., SAN R MINING AND CONSTRUCTION CORP. AND
GALEO EQUIPMENT AND MINING COMPANY, INC., Petitioner, v. THE
HONORABLE ANGELO T. REYES, IN HIS CAPACITY AS SECRETARY OF
DEPARTMENT ENVIRONMENT AND NATURAL RESOURCES
(DENR), Respondent.
DECISION
DEL CASTILLO, J.:
In this Petition for Review on Certiorari, SR Metals, Inc., SAN R Mining and
Construction Corp., and Galeo Equipment and Mining Co., Inc. (hereinafter referred to as
'mini corporations') assail the Decision1 and Resolution2 dated July 4, 2007 and
September 14 respectively, of the Court of Appeals (CA), in CA-G.R SP No. 97127. The
mining corporations fault the CA for (a) upholding the validity of the provision of
Presidential Decree (PD) No. 18993 which limits the annual production/extraction of
mineral ore in small-scale mining to 50,000 metric tons (MT) despite its being violative
of the equal protection clause, and (b) adopting the Mines and Geosciences Bureau's
(MGB) definition of 'ore,' which led the said court to conclude that the mining
corporation had exceeded the aforesaid 50,000-MT limit.
Factual Antecedents
On March 9, 2006, each of the petitioners was awarded a 2-year Small-Scale Mining
Permit4 (SSMP) by the Provincial Mining Regulatory Board of Agusan del Norte; they
were allowed to extract Nickel and Cobalt (Ni-Co) in a 20-hectare mining site in Sitio
Bugnang, Brgy. La Fraternidad, Tubay, Agusan del Norte. These permits were granted
after the Environmental Management Bureau (EMB), Region XIII of the Department of
Environment and Natural Resources (DENR) issued on March 2, 2006 Environmental
Compliance Certificates5 with a validity period of one year.
The mining corporations‘ ECCs contain a restriction that the amount of Ni-Co ore they
are allowed to extract annually should not exceed 50,000 MTs pursuant to Section 1 of
PD 1899 which provides:ChanRoblesVirtualawlibrary
Section 1. Small-scale mining refers to any single unit mining operation having an annual
production of not more than 50,000 metric tons of ore x x x.
Subsequently, however, Agusan del Norte Governor, Erlpe John M. Amante (Governor
Amante), questioned the quantity of ore that had been mined and shipped by the mining
corporations. In reply, the mining corporations denied having exceeded the extraction
limit of 50,000 MTs.6 They explained that an extracted mass contains only a limited
amount/percentage of Ni-Co as the latter is lumped with gangue, i.e., the unwanted rocks
and minerals. And it is only after the Ni-Co is separated from the gangue by means of a
scientific process should amount of the Ni-Co be measured and considered as ‗ore.‘
Excluding the gangue, the mining corporations pegged the volume of Ni-Co ore they had
extracted from the time they start shipping the same in August 2006 until they filed their
Petition before the CA in December 2006 at 1,699.66 MTs of Ni-Co ore only.7cralawred
Having reservations with the mining corporations‘ interpretation of the 50,000-MT
restriction, Governor Amante sought the opinion of the Department of Justice (DOJ) on
the matter.
Meanwhile, the EMB sent the mining corporations a Notice of Violation8 informing them
that they had exceeded the allowed annual volume of 150,000 MTs combined production
as their stockpile inventory of Nickeliferous ore had already total 177,297 dry metric
tons (DMT). This was based on the August 10, 2006 Inspection Report 9 of the MGB
Monitoring Team which conducted an inspection after the DENR received complaints of
violations of small-scale mining laws and policies by the mining corporations. A
technical conference was thereafter held to hear the side of the mining corporations anent
their alleged over-extraction.
On November 26, 2004, DENR Secretary Angelo T. Reyes issued a Cease and Desist
Order10 (CDO) against the mining corporations suspending their operations for their
operations for the following reasons:ChanRoblesVirtualawlibrary
1. The excess in 1) annual production of SR Metals, Inc., 2) maximum capitalization,
and, 3) labor cost to equipment utilization of 1:1 is, by itself, a violation of existing laws.
2. The ECCs issued in favor of San R Construction Corporation and Galeo Equipment
Corporation have no legal basis and [are] therefore considered null and void from the
beginning. Similarly, the small scale mining permits that were issued by reason of such
ECCs are likewise null and void.11
A few days later or on November 30, 2006, DOJ Secretary Raul M. Gonzalez replied to
Governor Amante citing DOJ Opinion No. 74, Series of 2006. 12 By comparing PD 1899
to Republic Act (RA) No. 7076,13 a subsequent law that likewise defines small-scale
mining, the DOJ opined that Section 1 of PD 1899 is deemed to have been impliedly
repealed by RA 7076 as nothing from the provisions of the latter law mentions anything
pertaining to an annual production quota for small-scale mining. It
explained:ChanRoblesVirtualawlibrary
The definition of ―small scale mining‖ under R.A. No. 7076 is clear and categorical. Any
mining activity that relies heavily on manual labor without use of explosives or heavy
mining equipment falls under said definition. It does not mention any annual production
96 of 111 – Envi Law Part III Cases
quota or limitation. On the contrary, Section 12 thereof is explicit that the contractor, or,
specifically, in this case, permit holders or permitees, are entitled not only to the right to
[mine], but also to "extract and dispose of mineral ores (found therein) for commercial
purposes‖ without specific limitation as to the nature of the mineral extracted or the
quantity thereof.
Moreover, while Section 13 of the law imposes certain duties and obligations upon the
contractor or permitee, nothing therein refers directly or otherwise to production quota
limitation. Additionally, even Section 10 thereof, which provides for the extent [of] the
mining area, does not limit production but only the mining area and depth of the tunnel or
adit which, as stated in the law shall ―not (exceed) that recommended by the (EMB)
director taking into account the ―quantity of mineral deposits‖, among others. It is,
however, silent on the extent of the mining‘s annual quota production. Thus, anything
that is not in the law cannot be interpreted as included in the law x x x14
Even assuming that the 50,000-MT ore limit in PD 1899 is still in force, the DOJ
categorically concluded that the term ‗ore‘ should be confined only to Ni-Co, that is,
excluding soil and other materials that are of no economic value to the mining
corporations. This is considering that their ECCs explicitly specified ‗50,000 MTs of Ni-
Co ore.‘
The mining corporations then filed before the CA a Petition for Certiorari with prayer for
Temporary Restraining Order and/or Preliminary Injunction, imputing grave abuse of
discretion on the part of DENR in issuing the CDO. Relying on the rationalizations on
the rationalization made by the DOJ in its November 30, 2006 Opinion, they vehemently
denied having over-extracted Ni-Co.
The Office of the Solicitor General (OSG), for its part, claimed that the CDO was issued
for ecological and health reasons and is a preventive measure against disaster arising
from multiple acts of over-extraction such as landslides, mudslides and flooding. Also to
be respected is the DENR‘s finding of the mining corporations‘ over-extraction because
being the agency mandated to implement the laws affecting the country‘s natural
resources, the DENR possesses the necessary expertise to come up with such
determination. For the same reason, the DENR's definition of small-scale mining
particularly that under Mines Administrative Order (MAO) No. MRD-41 series of
1984,15 must also be sustained.
Furthermore, the OSG averred that the mining corporations‘ concept of how to measure
NI-CO ore is flawed as this contradicts Section 2 of MAO No. MRD-41 which confines
the 50,000-MT limit to run-of-mine ore, viz.:ChanRoblesVirtualawlibrary
SECTION 2 - Who May Qualify for the Issuance of a Small Scale Mining Permit - Any
qualified person as defined in Sec. 1 of these Regulations, preferably claim owners and
applicants for or holders of quarry permits and/or licenses may be issued a small scale
mining permit provided that their mining operations, whether newly-opened, existing or
rehabilitated, involve:
(a) a single mining unit having an annual production not exceeding 50,0000 metric tons
of run-of-mine ore, either an open cast mine working or a subsurface mine working
which is driven to such distance as safety conditions and pracatices will allow;
xxxx
The OSG emphasized that in measuring an extraction, the only deduction allowed from
an extracted mass of ore is the weight of water, not the soil. It quoted a letter 16 Horacio C.
Ramos of the MGB Central Office dated April 30, 2007 addressed to the OSG, which
explained the definition of the phrase ―50,000-metric ton extraction limit," to
wit:ChanRoblesVirtualawlibrary
 50,000 metric tons of run-of-mine per year;
 the run[-]of[-]mine can either be wet or dry;
 traditionally, the production rate for nickel is based on dry since the water or
moisture content has no value; and
 thus, if the ore is wet, the weight of water is deducted from the total weight of
ores in the determination of the production rate, or for shipment purposes. 17
Ruling of the Court of Appeals
The CA denied the mining corporations‘ Petition, not only because the ECCs have been
mooted by their expiration, but also due to its recognition of the power of the DENR to
issue the CDO as the agency reposed with the duty of managing and conserving the
country's resources under Executive Order 192.18 Anent the issue of whether the imposed
limit under PD 1899 should be upheld and whether there was over extraction, the CA had
this to say:ChanRoblesVirtualawlibrary
We agree with the OSG‘s argument that the 50,000[-]metric ton limit pertains to the
mined ore in its unprocessed form, including the soil and dirt. The OSG argued that the
DOJ Opinion is not binding upon the court and that the agency which is tasked to
implement the mining laws is the DENR. Citing the MGB letter-reply, the OSG
contended that the limit provided in RA 1899 subsists and RA 7076 did not impliedly
repeal the latter. The provisions in both laws are not inconsistent with each other, both
recognizing the DENR‘s authority to promulgate rules and regulations for the
implementation of mining laws.19
Furthermore, the said court gave credence to the MGB‘s April 30, 2007 opinion on the
definition of the 50,000-MT limit. Rejecting the claims of the mining corporations, it
said:ChanRoblesVirtualawlibrary
97 of 111 – Envi Law Part III Cases
x x x Thus, the MAO not only buttresses the OSG‘s arguments as to what the extraction
limit pertains to, x x x it also contravenes [the mining corporations‘] assertion that the
extraction limit no longer exists and that, even if the limit subsists, they [had] not
exceeded the same because they [had] only extracted around 1,600 metric tons. Indeed,
for purposes of determining whether the extraction is still within the allowable limits,
only the weight of water is deducted from the run-of-mine ore.20
The mining corporations moved for partial reconsideration where they again relied
heavily on the DOJ Opinion.21 They also attacked the validity of Section 1(1) of PD 1899
that sets the annual production limit of 50,000-MT on small-scale mining by arguing that
it violates the equal protection clause of the Constitution and that it is already repealed by
RA 7076. Even granting that the said limit is still in force, the mining corporations
asserted the gangue should not be included in measuring the extraction, since their ECCs
clearly provide that 50,000 MTs of Ni-Co ore, not 50,000 MTs of ore, can be extracted.
Ignoring their arguments, the CA stressed that the DENR is the primary government
agency responsible for the conservation, management, development, and proper use of
the country's mineral resources. It reiterated:ChanRoblesVirtualawlibrary
This Court likewise declared that the MAO adopted the definition of small scale
mining in PD 1899, including the requirement of observing the extraction limit. Together
with the MGB's interpretation of the term ―run-of-mine ore‖, the MAO supports the
arguments of the OSG as to the extraction limit and controverts [the mining
corporations‘] assertion that no extraction limit exists and, if the same subsists, they [had]
not exceeded it.22
Hence, this Petition.
Issues
Two questions are posed before us. The first deals with the constitutionality of Section 1,
PD 1899 which, according to the mining corporations violates the equal protection
clause. They argue that there is no substantial distinction between the miners covered
under RA 7076, who can extract as much ore as they can, and those covered under PD
1899 who were imposed an extraction limit.
Another issue concerns the correct interpretation of the 50,000-MT limit. The mining
corporation insist on their version of how to compute the extraction.
To them, the computation of Ni-Co ore should be confined strictly to Ni-Co component
from which they derive economic value.
Our Ruling
Petitioners are governed by the annual
production limit under PD 1899.
Two different laws governing small-scale mining co-exist: PD 1899 and RA 7076.23 The
controversy lies in the apparent conflicting provisions on the definition of small-scale
mining under the two laws. Section 1 of PD 1899 defines small-scale mining in this
wise:ChanRoblesVirtualawlibrary
Small-scale mining refers to any single unit mining operation having an annual
production of not more than 50,000 metric tons of ore and satisfying the following
requisites:
1. The working is artisanal, whether open cast or shallow underground mining, without
the use of sophisticated mining equipment;
2. Minimal investment on infrastructures and processing plant;
3. Heavy reliance on manual labor; and
4. Owned, managed or controlled by an individual or entity qualified under existing
mining laws, rules and regulations.
On the other hand, under Section 3(b) of RA 7076, small-scale mining refers to 'mining
activities which rely heavily on manual labor using simple implements and methods and
do not use explosives or heavy mining equipment.‘ Significantly, this definition does not
provide for annual extraction limit unlike in PD 1899.
DOJ Opinion No. 74, Series of 2006 concluded that as nothing from RA 7076 speaks of
an annual production limit, Section 1 of PD 1899 should be considered impliedly
repealed by RA 7076, the later law. However, while these two laws tackle the definition
of what small-scale mining is, both have different objects upon which the laws shall be
applied to. PD 1899 applies to individuals, partnerships and corporations while RA 7076
applies to cooperatives.24 There are other differences between the two laws, but we
cannot hastily conclude that there is an implied repeal because of the omission. Both laws
may stand.
Petitioners then construe the omission of the annual production limit in the later law in
the that sense that small-scale miners granted mining contracts under RA 7076 can now
conduct mineral extraction as much as they can while the benefit of unlimited extraction
is denied to those granted permits under PD 1899. According to them, such situation
creates an invalid classification of small-scale miners under the two laws, hence the
attack on Section 1 of PD 1899 as being violative of the equal protection clause.
We do not, however, subscribe to the mining corporations‘ averment that the 50,000-MTs
production limit does not apply to small-scale miners under RA 7076. Recognizing the
DENR‘s mandate to regulate the country‘s natural resources under EO 192, 25 both PD
98 of 111 – Envi Law Part III Cases
1899 and RA 7076 delegated to the DENR, thru its Secretary, the power to promulgate
the necessary IRRs to give effect to the said laws. 26cralawred
Significantly, the DENR in the exercise of such power had just recently resolved the
question on the production limit in small-scale mining. On July 5, 2007, it issued DMC
2007-07 or ―Clarificatory Guidelines in the Implementation of the Small-Scale Mining
Laws‖. By imposing the annual production limit of 50,000 DMT to both SSMPs issued
under PD 1899 and Small-Scale Mining Contracts (SSMCs) under RA 7076, the DENR
harmonized the two laws, viz:ChanRoblesVirtualawlibrary
V. Maximum Annual Production
For metallic minerals, the maximum annual production under an SSMP/SSMC shall be
50,000 dry metric tons (DMT[s]) of ore, while for nonmetallic minerals, the maximum
annual production shall be 50,000 DMT[s] of the material itself, e.g., 50,000 DMT[s] of
limestone, 50,000 DMT[s] of silica, or 50,000 DMT[s] of perlite.
The maximum annual production above shall include low-grade and/or marginal ore,
and/or minerals or rocks that are intended for sampling and/or metallurgical testing
purpose/s."
With the 50,000-MT limit likewise imposed on small-scale miners under RA 7076, the
issue raised on the violation of the equal protection clause is moot. The fact is, the
DENR treats all small-scale miners equally as the production limit applies to all of them.
There is therefore no more reason for the mining corporations to not recognize and
comply with the said limitation. It must be stressed that the DENR is the government
agency tasked with the duty of managing and conserving the country‘s resources; it is
also the agency vested with the authority to promulgate rules and regulations for the
implementation of mining laws.
The DENR, being the agency mandated
to protect the environment and the country's
natural resources, is authoritative on
interpreting the 50,000- MT limit.
MAO No. MRD-41 specifies measuring the ‗run-of-mine ore,‘ meaning the ore as it
emerges from the mine, i.e., before treatment.27 As explained by the DENR-MGB
Director, the ore is weighed only in DMT, excluding the water or moisture content.
Simply stated, included in the measurement are other materials lumped with the sought-
after mineral.
This definition is congruent with RA 7942 or The Philippine Mining Act of 1995. Said
law defines ―ore‖ as ―naturally occurring substance or material from which a mineral or
element can be mined and/or processed for profit.‖28 Clearly, the law refers to ore in its
unprocessed form, i.e., before the valuable mineral is separate from the ore itself.
Also in Section V of the earlier mentioned DMC-2007-07, the DENR clarified the
50,000-MT limit by differentiating the measurement of metallic minerals from
nonmetallic ones. Noticeably, the metallic minerals are conservatively measured
compared to nonmetallic or industrial minerals for a reason. Compared to metallic
minerals, nonmetals are easily available when mined in their raw/natural state, like
limestone. As nonmetallics are produced from natural aggregates, the production limit of
50,000 DMTs will be easily met. On the other hand, metallic minerals, like Ni-Co are
not easily available in their pure form since they are sourced from ores which are
mined. To extract these metals of economic value, the gangue lumped with them have to
be removed by metallurgy. And in order to produce a ton of a metallic mineral sought
for, big volumes of gangue will have to be removed. As indicated by the mining
corporations' Summary of Shipments, 29 it took 151,612 DMTs of ore to extract only
1,699. DMTs of Ni-Co. Thus, 149,912.34 DMTs of ore are considered waste. This
means that if we are to subscribe to the mining corporations‘ interpretation of how to
measure mined ore by measuring only the Ni-Co and excluding the gangue, small-scale
miners are virtually given the license to continuously collect large volumes of ore until
the 50,000 DMTs of Ni-Co limit is met. It must be emphasized that mining, whether
small or large-scale, raises environmental concerns. To allow such a scenario will further
cause damage to the environment such as erosion and sedimentation, landslides,
deforestation, acid rock drainage, etc.30 As correctly argued by the Solicitor General,
extracting millions of DMTs of run-of-mine ore will mean irreversible degradation of the
natural resources and possible landslides and flashfloods.
It may be significant to state at this point that while the annual production limit by
measuring only the material itself may apply in small-scale nonmetallic mining, the same
cannot be true to metal mining for the reasons above stated. Hence, the DENR saw it
proper to conservatively measure the production of metallic minerals apparently bearing
in mind the more intense of such kind of mining to the environment.
Anent the mining corporations‘ contention that their ECCs specified that they were
allowed to extract 50,000 MTs of Ni-Co, such should not be taken literally in the sense
that the measurement should only be based on the Ni-Co in their purest form. Their that
they are to mine Ni-Co and not any other minerals. This construction likewise applies to
the respective SSMPs given them.
WHEREFORE, premises considered, the Petition is DENIED. The July 4, 2007
Decision and September 14, 2007 Resolution of the Court of Appeals in CA-G.R. SP No.
97127 are hereby AFFIRMED in toto.
SO ORDERED.
Carpio, (Chairperson), Brion, and Perlas-Bernabe, JJ. concur.
99 of 111 – Envi Law Part III Cases
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 101083 July 30, 1993
JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA,
minors, and represented by their parents ANTONIO and RIZALINA OPOSA,
ROBERTA NICOLE SADIUA, minor, represented by her parents CALVIN and
ROBERTA SADIUA, CARLO, AMANDA SALUD and PATRISHA, all surnamed
FLORES, minors and represented by their parents ENRICO and NIDA FLORES,
GIANINA DITA R. FORTUN, minor, represented by her parents SIGRID and
DOLORES FORTUN, GEORGE II and MA. CONCEPCION, all surnamed MISA,
minors and represented by their parents GEORGE and MYRA MISA, BENJAMIN
ALAN V. PESIGAN, minor, represented by his parents ANTONIO and ALICE
PESIGAN, JOVIE MARIE ALFARO, minor, represented by her parents JOSE and
MARIA VIOLETA ALFARO, MARIA CONCEPCION T. CASTRO, minor,
represented by her parents FREDENIL and JANE CASTRO, JOHANNA
DESAMPARADO,
minor, represented by her parents JOSE and ANGELA DESAMPRADO, CARLO
JOAQUIN T. NARVASA, minor, represented by his parents GREGORIO II and
CRISTINE CHARITY NARVASA, MA. MARGARITA, JESUS IGNACIO, MA.
ANGELA and MARIE GABRIELLE, all surnamed SAENZ, minors, represented
by their parents ROBERTO and AURORA SAENZ, KRISTINE, MARY ELLEN,
MAY, GOLDA MARTHE and DAVID IAN, all surnamed KING, minors,
represented by their parents MARIO and HAYDEE KING, DAVID, FRANCISCO
and THERESE VICTORIA, all surnamed ENDRIGA, minors, represented by their
parents BALTAZAR and TERESITA ENDRIGA, JOSE MA. and REGINA MA.,
all surnamed ABAYA, minors, represented by their parents ANTONIO and
MARICA ABAYA, MARILIN, MARIO, JR. and MARIETTE, all surnamed
CARDAMA, minors, represented by their parents MARIO and LINA CARDAMA,
CLARISSA, ANN MARIE, NAGEL, and IMEE LYN, all surnamed OPOSA,
minors and represented by their parents RICARDO and MARISSA OPOSA,
PHILIP JOSEPH, STEPHEN JOHN and ISAIAH JAMES, all surnamed QUIPIT,
minors, represented by their parents JOSE MAX and VILMI QUIPIT, BUGHAW
CIELO, CRISANTO, ANNA, DANIEL and FRANCISCO, all surnamed BIBAL,
minors, represented by their parents FRANCISCO, JR. and MILAGROS BIBAL,
and THE PHILIPPINE ECOLOGICAL NETWORK, INC., petitioners,
vs.
THE HONORABLE FULGENCIO S. FACTORAN, JR., in his capacity as the
Secretary of the Department of Environment and Natural Resources, and THE
HONORABLE ERIBERTO U. ROSARIO, Presiding Judge of the RTC, Makati,
Branch 66, respondents.
Oposa Law Office for petitioners.
The Solicitor General for respondents.
DAVIDE, JR., J.:
In a broader sense, this petition bears upon the right of Filipinos to a balanced and
healthful ecology which the petitioners dramatically associate with the twin concepts of
"inter-generational responsibility" and "inter-generational justice." Specifically, it touches
on the issue of whether the said petitioners have a cause of action to "prevent the
misappropriation or impairment" of Philippine rainforests and "arrest the unabated
hemorrhage of the country's vital life support systems and continued rape of Mother
Earth."
The controversy has its genesis in Civil Case No. 90-77 which was filed before Branch
66 (Makati, Metro Manila) of the Regional Trial Court (RTC), National Capital Judicial
Region. The principal plaintiffs therein, now the principal petitioners, are all minors duly
represented and joined by their respective parents. Impleaded as an additional plaintiff is
the Philippine Ecological Network, Inc. (PENI), a domestic, non-stock and non-profit
corporation organized for the purpose of, inter alia, engaging in concerted action geared
for the protection of our environment and natural resources. The original defendant was
the Honorable Fulgencio S. Factoran, Jr., then Secretary of the Department of
Environment and Natural Resources (DENR). His substitution in this petition by the new
Secretary, the Honorable Angel C. Alcala, was subsequently ordered upon proper motion
by the petitioners.1 The complaint2 was instituted as a taxpayers' class suit 3 and alleges
that the plaintiffs "are all citizens of the Republic of the Philippines, taxpayers, and
entitled to the full benefit, use and enjoyment of the natural resource treasure that is the
country's virgin tropical forests." The same was filed for themselves and others who are
equally concerned about the preservation of said resource but are "so numerous that it is
impracticable to bring them all before the Court." The minors further asseverate that they
"represent their generation as well as generations yet unborn."4 Consequently, it is prayed
for that judgment be rendered:
. . . ordering defendant, his agents, representatives and other persons
acting in his behalf to —
(1) Cancel all existing timber license agreements in the country;
100 of 111 – Envi Law Part III Cases
(2) Cease and desist from receiving, accepting, processing, renewing or
approving new timber license agreements.
and granting the plaintiffs ". . . such other reliefs just and equitable under the premises." 5
The complaint starts off with the general averments that the Philippine archipelago of
7,100 islands has a land area of thirty million (30,000,000) hectares and is endowed with
rich, lush and verdant rainforests in which varied, rare and unique species of flora and
fauna may be found; these rainforests contain a genetic, biological and chemical pool
which is irreplaceable; they are also the habitat of indigenous Philippine cultures which
have existed, endured and flourished since time immemorial; scientific evidence reveals
that in order to maintain a balanced and healthful ecology, the country's land area should
be utilized on the basis of a ratio of fifty-four per cent (54%) for forest cover and forty-
six per cent (46%) for agricultural, residential, industrial, commercial and other uses; the
distortion and disturbance of this balance as a consequence of deforestation have resulted
in a host of environmental tragedies, such as (a) water shortages resulting from drying up
of the water table, otherwise known as the "aquifer," as well as of rivers, brooks and
streams, (b) salinization of the water table as a result of the intrusion therein of salt water,
incontrovertible examples of which may be found in the island of Cebu and the
Municipality of Bacoor, Cavite, (c) massive erosion and the consequential loss of soil
fertility and agricultural productivity, with the volume of soil eroded estimated at one
billion (1,000,000,000) cubic meters per annum — approximately the size of the entire
island of Catanduanes, (d) the endangering and extinction of the country's unique, rare
and varied flora and fauna, (e) the disturbance and dislocation of cultural communities,
including the disappearance of the Filipino's indigenous cultures, (f) the siltation of rivers
and seabeds and consequential destruction of corals and other aquatic life leading to a
critical reduction in marine resource productivity, (g) recurrent spells of drought as is
presently experienced by the entire country, (h) increasing velocity of typhoon winds
which result from the absence of windbreakers, (i) the floodings of lowlands and
agricultural plains arising from the absence of the absorbent mechanism of forests, (j) the
siltation and shortening of the lifespan of multi-billion peso dams constructed and
operated for the purpose of supplying water for domestic uses, irrigation and the
generation of electric power, and (k) the reduction of the earth's capacity to process
carbon dioxide gases which has led to perplexing and catastrophic climatic changes such
as the phenomenon of global warming, otherwise known as the "greenhouse effect."
Plaintiffs further assert that the adverse and detrimental consequences of continued and
deforestation are so capable of unquestionable demonstration that the same may be
submitted as a matter of judicial notice. This notwithstanding, they expressed their
intention to present expert witnesses as well as documentary, photographic and film
evidence in the course of the trial.
As their cause of action, they specifically allege that:
CAUSE OF ACTION
7. Plaintiffs replead by reference the foregoing allegations.
8. Twenty-five (25) years ago, the Philippines had some sixteen (16)
million hectares of rainforests constituting roughly 53% of the
country's land mass.
9. Satellite images taken in 1987 reveal that there remained no more
than 1.2 million hectares of said rainforests or four per cent (4.0%) of
the country's land area.
10. More recent surveys reveal that a mere 850,000 hectares of virgin
old-growth rainforests are left, barely 2.8% of the entire land mass of
the Philippine archipelago and about 3.0 million hectares of immature
and uneconomical secondary growth forests.
11. Public records reveal that the defendant's, predecessors have
granted timber license agreements ('TLA's') to various corporations to
cut the aggregate area of 3.89 million hectares for commercial logging
purposes.
A copy of the TLA holders and the corresponding areas covered is
hereto attached as Annex "A".
12. At the present rate of deforestation, i.e. about 200,000 hectares per
annum or 25 hectares per hour — nighttime, Saturdays, Sundays and
holidays included — the Philippines will be bereft of forest resources
after the end of this ensuing decade, if not earlier.
13. The adverse effects, disastrous consequences, serious injury and
irreparable damage of this continued trend of deforestation to the
plaintiff minor's generation and to generations yet unborn are evident
and incontrovertible. As a matter of fact, the environmental damages
enumerated in paragraph 6 hereof are already being felt, experienced
and suffered by the generation of plaintiff adults.
14. The continued allowance by defendant of TLA holders to cut and
deforest the remaining forest stands will work great damage and
irreparable injury to plaintiffs — especially plaintiff minors and their
successors — who may never see, use, benefit from and enjoy this rare
and unique natural resource treasure.
101 of 111 – Envi Law Part III Cases
This act of defendant constitutes a misappropriation and/or impairment
of the natural resource property he holds in trust for the benefit of
plaintiff minors and succeeding generations.
15. Plaintiffs have a clear and constitutional right to a balanced and
healthful ecology and are entitled to protection by the State in its
capacity as the parens patriae.
16. Plaintiff have exhausted all administrative remedies with the
defendant's office. On March 2, 1990, plaintiffs served upon defendant
a final demand to cancel all logging permits in the country.
A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as
Annex "B".
17. Defendant, however, fails and refuses to cancel the existing TLA's
to the continuing serious damage and extreme prejudice of plaintiffs.
18. The continued failure and refusal by defendant to cancel the TLA's
is an act violative of the rights of plaintiffs, especially plaintiff minors
who may be left with a country that is desertified (sic), bare, barren and
devoid of the wonderful flora, fauna and indigenous cultures which the
Philippines had been abundantly blessed with.
19. Defendant's refusal to cancel the aforementioned TLA's is
manifestly contrary to the public policy enunciated in the Philippine
Environmental Policy which, in pertinent part, states that it is the policy
of the State —
(a) to create, develop, maintain and improve conditions under which
man and nature can thrive in productive and enjoyable harmony with
each other;
(b) to fulfill the social, economic and other requirements of present and
future generations of Filipinos and;
(c) to ensure the attainment of an environmental quality that is
conductive to a life of dignity and well-being. (P.D. 1151, 6 June 1977)
20. Furthermore, defendant's continued refusal to cancel the
aforementioned TLA's is contradictory to the Constitutional policy of
the State to —
a. effect "a more equitable distribution of opportunities, income and
wealth" and "make full and efficient use of natural resources (sic)."
(Section 1, Article XII of the Constitution);
b. "protect the nation's marine wealth." (Section 2, ibid);
c. "conserve and promote the nation's cultural heritage and resources
(sic)" (Section 14, Article XIV, id.);
d. "protect and advance the right of the people to a balanced and
healthful ecology in accord with the rhythm and harmony of nature."
(Section 16, Article II, id.)
21. Finally, defendant's act is contrary to the highest law of humankind
— the natural law — and violative of plaintiffs' right to self-
preservation and perpetuation.
22. There is no other plain, speedy and adequate remedy in law other
than the instant action to arrest the unabated hemorrhage of the
country's vital life support systems and continued rape of Mother
Earth. 6
On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed a Motion to
Dismiss the complaint based on two (2) grounds, namely: (1) the plaintiffs have no cause
of action against him and (2) the issue raised by the plaintiffs is a political question which
properly pertains to the legislative or executive branches of Government. In their 12 July
1990 Opposition to the Motion, the petitioners maintain that (1) the complaint shows a
clear and unmistakable cause of action, (2) the motion is dilatory and (3) the action
presents a justiciable question as it involves the defendant's abuse of discretion.
On 18 July 1991, respondent Judge issued an order granting the aforementioned motion
to dismiss.7 In the said order, not only was the defendant's claim — that the complaint
states no cause of action against him and that it raises a political question — sustained,
the respondent Judge further ruled that the granting of the relief prayed for would result
in the impairment of contracts which is prohibited by the fundamental law of the land.
Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the
Revised Rules of Court and ask this Court to rescind and set aside the dismissal order on
the ground that the respondent Judge gravely abused his discretion in dismissing the
action. Again, the parents of the plaintiffs-minors not only represent their children, but
have also joined the latter in this case.8
102 of 111 – Envi Law Part III Cases
On 14 May 1992, We resolved to give due course to the petition and required the parties
to submit their respective Memoranda after the Office of the Solicitor General (OSG)
filed a Comment in behalf of the respondents and the petitioners filed a reply thereto.
Petitioners contend that the complaint clearly and unmistakably states a cause of action as
it contains sufficient allegations concerning their right to a sound environment based on
Articles 19, 20 and 21 of the Civil Code (Human Relations), Section 4 of Executive
Order (E.O.) No. 192 creating the DENR, Section 3 of Presidential Decree (P.D.) No.
1151 (Philippine Environmental Policy), Section 16, Article II of the 1987 Constitution
recognizing the right of the people to a balanced and healthful ecology, the concept of
generational genocide in Criminal Law and the concept of man's inalienable right to self-
preservation and self-perpetuation embodied in natural law. Petitioners likewise rely on
the respondent's correlative obligation per Section 4 of E.O. No. 192, to safeguard the
people's right to a healthful environment.
It is further claimed that the issue of the respondent Secretary's alleged grave abuse of
discretion in granting Timber License Agreements (TLAs) to cover more areas for
logging than what is available involves a judicial question.
Anent the invocation by the respondent Judge of the Constitution's non-impairment
clause, petitioners maintain that the same does not apply in this case because TLAs are
not contracts. They likewise submit that even if TLAs may be considered protected by
the said clause, it is well settled that they may still be revoked by the State when the
public interest so requires.
On the other hand, the respondents aver that the petitioners failed to allege in their
complaint a specific legal right violated by the respondent Secretary for which any relief
is provided by law. They see nothing in the complaint but vague and nebulous allegations
concerning an "environmental right" which supposedly entitles the petitioners to the
"protection by the state in its capacity as parens patriae." Such allegations, according to
them, do not reveal a valid cause of action. They then reiterate the theory that the
question of whether logging should be permitted in the country is a political question
which should be properly addressed to the executive or legislative branches of
Government. They therefore assert that the petitioners' resources is not to file an action to
court, but to lobby before Congress for the passage of a bill that would ban logging
totally.
As to the matter of the cancellation of the TLAs, respondents submit that the same cannot
be done by the State without due process of law. Once issued, a TLA remains effective
for a certain period of time — usually for twenty-five (25) years. During its effectivity,
the same can neither be revised nor cancelled unless the holder has been found, after due
notice and hearing, to have violated the terms of the agreement or other forestry laws and
regulations. Petitioners' proposition to have all the TLAs indiscriminately cancelled
without the requisite hearing would be violative of the requirements of due process.
Before going any further, We must first focus on some procedural matters. Petitioners
instituted Civil Case No. 90-777 as a class suit. The original defendant and the present
respondents did not take issue with this matter. Nevertheless, We hereby rule that the said
civil case is indeed a class suit. The subject matter of the complaint is of common and
general interest not just to several, but to all citizens of the Philippines. Consequently,
since the parties are so numerous, it, becomes impracticable, if not totally impossible, to
bring all of them before the court. We likewise declare that the plaintiffs therein are
numerous and representative enough to ensure the full protection of all concerned
interests. Hence, all the requisites for the filing of a valid class suit under Section 12,
Rule 3 of the Revised Rules of Court are present both in the said civil case and in the
instant petition, the latter being but an incident to the former.
This case, however, has a special and novel element. Petitioners minors assert that they
represent their generation as well as generations yet unborn. We find no difficulty in
ruling that they can, for themselves, for others of their generation and for the succeeding
generations, file a class suit. Their personality to sue in behalf of the succeeding
generations can only be based on the concept of intergenerational responsibility insofar as
the right to a balanced and healthful ecology is concerned. Such a right, as hereinafter
expounded, considers
the "rhythm and harmony of nature." Nature means the created world in its
entirety.9 Such rhythm and harmony indispensably include, inter alia, the judicious
disposition, utilization, management, renewal and conservation of the country's forest,
mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the
end that their exploration, development and utilization be equitably accessible to the
present as well as future generations. 10Needless to say, every generation has a
responsibility to the next to preserve that rhythm and harmony for the full enjoyment of a
balanced and healthful ecology. Put a little differently, the minors' assertion of their right
to a sound environment constitutes, at the same time, the performance of their obligation
to ensure the protection of that right for the generations to come.
The locus standi of the petitioners having thus been addressed, We shall now proceed to
the merits of the petition.
After a careful perusal of the complaint in question and a meticulous consideration and
evaluation of the issues raised and arguments adduced by the parties, We do not hesitate
to find for the petitioners and rule against the respondent Judge's challenged order for
having been issued with grave abuse of discretion amounting to lack of jurisdiction. The
pertinent portions of the said order reads as follows:
xxx xxx xxx
After a careful and circumspect evaluation of the Complaint, the Court
cannot help but agree with the defendant. For although we believe that
plaintiffs have but the noblest of all intentions, it (sic) fell short of
103 of 111 – Envi Law Part III Cases
alleging, with sufficient definiteness, a specific legal right they are
seeking to enforce and protect, or a specific legal wrong they are
seeking to prevent and redress (Sec. 1, Rule 2, RRC). Furthermore, the
Court notes that the Complaint is replete with vague assumptions and
vague conclusions based on unverified data. In fine, plaintiffs fail to
state a cause of action in its Complaint against the herein defendant.
Furthermore, the Court firmly believes that the matter before it, being
impressed with political color and involving a matter of public policy,
may not be taken cognizance of by this Court without doing violence to
the sacred principle of "Separation of Powers" of the three (3) co-equal
branches of the Government.
The Court is likewise of the impression that it cannot, no matter how
we stretch our jurisdiction, grant the reliefs prayed for by the
plaintiffs, i.e., to cancel all existing timber license agreements in the
country and to cease and desist from receiving, accepting, processing,
renewing or approving new timber license agreements. For to do
otherwise would amount to "impairment of contracts" abhored (sic) by
the fundamental law. 11
We do not agree with the trial court's conclusions that the plaintiffs failed to allege with
sufficient definiteness a specific legal right involved or a specific legal wrong committed,
and that the complaint is replete with vague assumptions and conclusions based on
unverified data. A reading of the complaint itself belies these conclusions.
The complaint focuses on one specific fundamental legal right — the right to a balanced
and healthful ecology which, for the first time in our nation's constitutional history, is
solemnly incorporated in the fundamental law. Section 16, Article II of the 1987
Constitution explicitly provides:
Sec. 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.
This right unites with the right to health which is provided for in the
preceding section of the same article:
Sec. 15. The State shall protect and promote the right to health of the
people and instill health consciousness among them.
While the right to a balanced and healthful ecology is to be found under the Declaration
of Principles and 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 the correlative duty to refrain
from impairing the environment. During the debates on this right in one of the plenary
sessions of the 1986 Constitutional Commission, the following exchange transpired
between Commissioner Wilfrido Villacorta and Commissioner Adolfo Azcuna who
sponsored the section in question:
MR. VILLACORTA:
Does this section mandate the State to provide
sanctions against all forms of pollution — air, water
and noise pollution?
MR. AZCUNA:
Yes, Madam President. The right to healthful (sic)
environment necessarily carries with it the correlative
duty of not impairing the same and, therefore,
sanctions may be provided for impairment of
environmental balance. 12
The said right implies, among many other things, the judicious management and
conservation of the country's forests.
Without such forests, the ecological or environmental balance would be
irreversiby disrupted.
Conformably with the enunciated right to a balanced and healthful ecology and the right
to health, as well as the other related provisions of the Constitution concerning the
conservation, development and utilization of the country's natural resources, 13 then
104 of 111 – Envi Law Part III Cases
President Corazon C. Aquino promulgated on 10 June 1987 E.O. No. 192, 14 Section 4 of
which expressly mandates that the Department of Environment and Natural Resources
"shall be the primary government agency responsible for the conservation, management,
development and proper use of the country's environment and natural resources,
specifically forest and grazing lands, mineral, resources, including those in reservation
and watershed areas, and lands of the public domain, as well as the licensing and
regulation of all natural resources as may be provided for by law in order to ensure
equitable sharing of the benefits derived therefrom for the welfare of the present and
future generations of Filipinos." Section 3 thereof makes the following statement of
policy:
Sec. 3. Declaration of Policy. — It is hereby declared the policy of the
State to ensure the sustainable use, development, management,
renewal, and conservation of the country's forest, mineral, land, off-
shore areas and other natural resources, including the protection and
enhancement of the quality of the environment, and equitable access of
the different segments of the population to the development and the use
of the country's natural resources, not only for the present generation
but for future generations as well. It is also the policy of the state to
recognize and apply a true value system including social and
environmental cost implications relative to their utilization,
development and conservation of our natural resources.
This policy declaration is substantially re-stated it Title XIV, Book IV of the
Administrative Code of 1987,15 specifically in Section 1 thereof which reads:
Sec. 1. Declaration of Policy. — (1) The State shall ensure, for the
benefit of the Filipino people, the full exploration and development as
well as the judicious disposition, utilization, management, renewal and
conservation of the country's forest, mineral, land, waters, fisheries,
wildlife, off-shore areas and other natural resources, consistent with the
necessity of maintaining a sound ecological balance and protecting and
enhancing the quality of the environment and the objective of making
the exploration, development and utilization of such natural resources
equitably accessible to the different segments of the present as well as
future generations.
(2) The State shall likewise recognize and apply a true value system
that takes into account social and environmental cost implications
relative to the utilization, development and conservation of our natural
resources.
The above provision stresses "the necessity of maintaining a sound ecological balance
and protecting and enhancing the quality of the environment." Section 2 of the same
Title, on the other hand, specifically speaks of the mandate of the DENR; however, it
makes particular reference to the fact of the agency's being subject to law and higher
authority. Said section provides:
Sec. 2. Mandate. — (1) The Department of Environment and Natural
Resources shall be primarily responsible for the implementation of the
foregoing policy.
(2) It shall, subject to law and higher authority, be in charge of carrying
out the State's constitutional mandate to control and supervise the
exploration, development, utilization, and conservation of the country's
natural resources.
Both E.O. NO. 192 and the Administrative Code of 1987 have set the objectives which
will serve as the bases for policy formulation, and have defined the powers and functions
of the DENR.
It may, however, be recalled that even before the ratification of the 1987 Constitution,
specific statutes already paid special attention to the "environmental right" of the present
and future generations. On 6 June 1977, P.D. No. 1151 (Philippine Environmental
Policy) and P.D. No. 1152 (Philippine Environment Code) were issued. The former
"declared a continuing policy of the State (a) to create, develop, maintain and improve
conditions under which man and nature can thrive in productive and enjoyable harmony
with each other, (b) to fulfill the social, economic and other requirements of present and
future generations of Filipinos, and (c) to insure the attainment of an environmental
quality that is conducive to a life of dignity and well-being." 16 As its goal, it speaks of
the "responsibilities of each generation as trustee and guardian of the environment for
succeeding generations." 17 The latter statute, on the other hand, gave flesh to the said
policy.
Thus, the right of the petitioners (and all those they represent) to a balanced and healthful
ecology is as clear as the DENR's duty — under its mandate and by virtue of its powers
and functions under E.O. No. 192 and the Administrative Code of 1987 — to protect and
advance the said right.
A denial or violation of that right by the other who has the corelative duty or obligation to
respect or protect the same gives rise to a cause of action. Petitioners maintain that the
granting of the TLAs, which they claim was done with grave abuse of discretion, violated
their right to a balanced and healthful ecology; hence, the full protection thereof requires
that no further TLAs should be renewed or granted.
A cause of action is defined as:
105 of 111 – Envi Law Part III Cases
. . . an act or omission of one party in violation of the legal right or
rights of the other; and its essential elements are legal right of the
plaintiff, correlative obligation of the defendant, and act or omission of
the defendant in violation of said legal right. 18
It is settled in this jurisdiction that in a motion to dismiss based on the ground that the
complaint fails to state a cause of action, 19 the question submitted to the court for
resolution involves the sufficiency of the facts alleged in the complaint itself. No other
matter should be considered; furthermore, the truth of falsity of the said allegations is
beside the point for the truth thereof is deemed hypothetically admitted. The only issue to
be resolved in such a case is: admitting such alleged facts to be true, may the court render
a valid judgment in accordance with the prayer in the complaint? 20 In Militante vs.
Edrosolano, 21 this Court laid down the rule that the judiciary should "exercise the utmost
care and circumspection in passing upon a motion to dismiss on the ground of the
absence thereof [cause of action] lest, by its failure to manifest a correct appreciation of
the facts alleged and deemed hypothetically admitted, what the law grants or recognizes
is effectively nullified. If that happens, there is a blot on the legal order. The law itself
stands in disrepute."
After careful examination of the petitioners' complaint, We find the statements under the
introductory affirmative allegations, as well as the specific averments under the sub-
heading CAUSE OF ACTION, to be adequate enough to show, prima facie, the claimed
violation of their rights. On the basis thereof, they may thus be granted, wholly or partly,
the reliefs prayed for. It bears stressing, however, that insofar as the cancellation of the
TLAs is concerned, there is the need to implead, as party defendants, the grantees thereof
for they are indispensable parties.
The foregoing considered, Civil Case No. 90-777 be said to raise a political question.
Policy formulation or determination by the executive or legislative branches of
Government is not squarely put in issue. What is principally involved is the enforcement
of a right vis-a-vis policies already formulated and expressed in legislation. It must,
nonetheless, be emphasized that the political question doctrine is no longer, the
insurmountable obstacle to the exercise of judicial power or the impenetrable shield that
protects executive and legislative actions from judicial inquiry or review. The second
paragraph of section 1, Article VIII of the Constitution states that:
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the
part of any branch or instrumentality of the Government.
Commenting on this provision in his book, Philippine Political Law, 22 Mr. Justice
Isagani A. Cruz, a distinguished member of this Court, says:
The first part of the authority represents the traditional concept of
judicial power, involving the settlement of conflicting rights as
conferred as law. The second part of the authority represents a
broadening of judicial power to enable the courts of justice to review
what was before forbidden territory, to wit, the discretion of the
political departments of the government.
As worded, the new provision vests in the judiciary, and particularly
the Supreme Court, the power to rule upon even the wisdom of the
decisions of the executive and the legislature and to declare their acts
invalid for lack or excess of jurisdiction because tainted with grave
abuse of discretion. The catch, of course, is the meaning of "grave
abuse of discretion," which is a very elastic phrase that can expand or
contract according to the disposition of the judiciary.
In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court, noted:
In the case now before us, the jurisdictional objection becomes even
less tenable and decisive. The reason is that, even if we were to assume
that the issue presented before us was political in nature, we would still
not be precluded from revolving it under the expanded jurisdiction
conferred upon us that now covers, in proper cases, even the political
question. Article VII, Section 1, of the Constitution clearly provides: . .
.
The last ground invoked by the trial court in dismissing the complaint is the non-
impairment of contracts clause found in the Constitution. The court a quo declared that:
The Court is likewise of the impression that it cannot, no matter how
we stretch our jurisdiction, grant the reliefs prayed for by the
plaintiffs, i.e., to cancel all existing timber license agreements in the
country and to cease and desist from receiving, accepting, processing,
renewing or approving new timber license agreements. For to do
otherwise would amount to "impairment of contracts" abhored (sic) by
the fundamental law. 24
We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a
sweeping pronouncement. In the first place, the respondent Secretary did not, for obvious
reasons, even invoke in his motion to dismiss the non-impairment clause. If he had done
so, he would have acted with utmost infidelity to the Government by providing undue
and unwarranted benefits and advantages to the timber license holders because he would
have forever bound the Government to strictly respect the said licenses according to their
terms and conditions regardless of changes in policy and the demands of public interest
and welfare. He was aware that as correctly pointed out by the petitioners, into every
106 of 111 – Envi Law Part III Cases
timber license must be read Section 20 of the Forestry Reform Code (P.D. No. 705)
which provides:
. . . Provided, That when the national interest so requires, the President
may amend, modify, replace or rescind any contract, concession,
permit, licenses or any other form of privilege granted herein . . .
Needless to say, all licenses may thus be revoked or rescinded by executive
action. It is not a contract, property or a property right protested by the due
process clause of the Constitution. In Tan vs. Director of Forestry, 25 this Court
held:
. . . A timber license is an instrument by which the State regulates the
utilization and disposition of forest resources to the end that public
welfare is promoted. A timber license is not a contract within the
purview of the due process clause; it is only a license or privilege,
which can be validly withdrawn whenever dictated by public interest or
public welfare as in this case.
A license is merely a permit or privilege to do what otherwise would be
unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it
property or a property right, nor does it create a vested right; nor is it
taxation (37 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).
We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive
Secretary: 26
. . . 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. 27
cannot be invoked.
In the second place, even if it is to be assumed that the same are contracts, the instant
case does not involve a law or even an executive issuance declaring the cancellation or
modification of existing timber licenses. Hence, the non-impairment clause cannot as yet
be invoked. Nevertheless, granting further that a law has actually been passed mandating
cancellations or modifications, the same cannot still be stigmatized as a violation of the
non-impairment clause. This is because by its very nature and purpose, such as law could
have only been passed in the exercise of the police power of the state for the purpose of
advancing the right of the people to a balanced and healthful ecology, promoting their
health and enhancing the general welfare. In Abe vs. Foster Wheeler
Corp. 28 this Court stated:
The freedom of contract, under our system of government, is not meant
to be absolute. The same is understood to be subject to reasonable
legislative regulation aimed at the promotion of public health, moral,
safety and welfare. In other words, the constitutional guaranty of non-
impairment of obligations of contract is limited by the exercise of the
police power of the State, in the interest of public health, safety, moral
and general welfare.
The reason for this is emphatically set forth in Nebia vs. New York, 29 quoted
in Philippine American Life Insurance Co. vs. Auditor General,30 to wit:
Under our form of government the use of property and the making of
contracts are normally matters of private and not of public concern. The
general rule is that both shall be free of governmental interference. But
neither property rights nor contract rights are absolute; for government
cannot exist if the citizen may at will use his property to the detriment
of his fellows, or exercise his freedom of contract to work them harm.
Equally fundamental with the private right is that of the public to
regulate it in the common interest.
In short, the non-impairment clause must yield to the police power of the state. 31
Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause
could apply with respect to the prayer to enjoin the respondent Secretary from receiving,
accepting, processing, renewing or approving new timber licenses for, save in cases
107 of 111 – Envi Law Part III Cases

of renewal, no contract would have as of yet existed in the other instances. Moreover,
with respect to renewal, the holder is not entitled to it as a matter of right.

WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED,
and the challenged Order of respondent Judge of 18 July 1991 dismissing Civil Case No.
90-777 is hereby set aside. The petitioners may therefore amend their complaint to
implead as defendants the holders or grantees of the questioned timber license
agreements.

No pronouncement as to costs.

SO ORDERED.

Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Romero, Nocon, Bellosillo, Melo and
Quiason, JJ., concur.

Narvasa, C.J., Puno and Vitug, JJ., took no part.

108 of 111 – Envi Law Part III Cases
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.
Tañada, 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
109 of 111 – Envi Law Part III Cases
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
110 of 111 – Envi Law Part III Cases
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
111 of 111 – Envi Law Part III Cases
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.