Case Digest: Earth Minerals Exploration vs Deputy Executive Secretary Catalino Macaraig, Jr., G.R. No. 7856

Earth Minerals Exploration vs Deputy Executive Secretary Catalino Macaraig, Jr., GR 78569, February 11, 1991

Subject: Obligations and Contracts

Facts

On September 11, 1980, Zambales Chromite, owner of 10 patentable chromite mining claims, and Philzea, as operator and the herein respondent, entered a “Contract of Development, Exploitation and Productive Operation” on the ten (10) patentable mining claims.

During the lifetime of such contract, Earth Minerals Exploration, Inc., the herein petitioner, submitted a Letter of Intent on to Zambales Chromite whereby the former proposed and the latter agreed to operate the same mining area subject of the earlier agreement between Zambales Chromite and Philzea Mining.

Consequently, the same mining property of Zambales Chromite became the subject of different agreements with two separate and distinct operators.

Earth Minerals filed a petition for cancellation of the contract between Zambales Chromite and Philzea Mining to the Bureau of Mines and Geo-Sciences (BMGS). Earth Minerals alleged that Philzea Mining committed grave and serious violations of the latter’s contract because of failure to produce the agreed volume of chromite ores; failure to pay ad valorem taxes; failure to put up assay buildings and offices, all resulting in the non-productivity and non-development of the mining area.

Philzea Mining filed a motion to dismiss on the ground that Earth Minerals is not the proper party in interest. Bureau of mines and geo sciences denied the petition, so Philzea elevated the case to Ministry of Natural Resources (MNR) to dismiss the appeal. MNR on the other hand ordered BMGS to investigate and found out that Philzea grossly violated the terms and conditions of the contract. BMGS rendered a decision canceling the said mining contract.

ISSUE:

Is Earth Minerals the proper party to seek cancellation of the operating agreement between Philzea Mining and Zambales Chromite?

RULING:

Yes. Art 1397 provides that the action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.

In this case, petitioner Earth Minerals seeks the cancellation of the contract between Zambales Chromite and Philzea Mining, not as a party to the contract but because his rights are prejudiced by the said contract. The prejudice and detriment to the rights and interest of petitioner stems from the continued existence of the contract between Zambales Chromite and private respondent Philzea Mining. Unless and until the contract between Zambales Chromite and Philzea Mining is cancelled, petitioner's contract with the former involving the same mining area cannot be in effect and it cannot perform its own obligations and derive benefits under its contract.