G.R. No. 159308. September 16, 2008.
Republic of the Philippines, represented by the Department of Environment and Natural Resources (DENR), Petitioner, versus Pagadian City Timber Co., Inc., Respondent.

FACTS

On October 14, 1994, the DENR and Pagadian City Timber Co., Inc. executed Industrial Forest Management Agreement (IFMA) No. R-9-040, authorizing the respondent to develop, utilize, and manage a 1,999.14-hectare forest area in Zamboanga del Sur. The respondent’s approved Comprehensive Development and Management Plan (CDMP) was approved on August 17, 1995. Due to numerous complaints from the Subanen tribe regarding the respondent’s alleged failure to implement the CDMP, disrespect of indigenous rights, and harassment by armed men, the DENR Regional Executive Director issued a special order creating a team to evaluate the IFMA. A notice was sent to the respondent on October 22, 1998. An evaluation was conducted from October 23-30, 1998, followed by an exit conference on October 29, 1998, where findings were presented to the respondent’s Operations Manager, Inocencio Santiago. The evaluation report, dated November 6, 1998, found severe deficiencies: a mango plantation with only a 5% survival rate, Gmelina plantations with approximately 43% survival, overgrown seedlings in the nursery, only one of four reported lookout towers existing, neglected infrastructure, and unmarked boundaries. The report also indicated that some reported planted areas were outside the IFMA area. Based on this, the DENR Secretary, by an Order dated January 29, 1999, cancelled the IFMA for the respondent’s failure to develop the area according to the approved CDMP, constituting a violation of the agreement’s terms. The respondent’s motion for reconsideration was denied. The respondent filed a petition for review with the Court of Appeals, which granted the petition, set aside the DENR’s cancellation order, and reinstated the IFMA. The Court of Appeals held that the respondent was denied due process as it was not given an opportunity to be heard and present evidence to rebut the findings before the cancellation. The DENR’s motion for reconsideration was denied, prompting this petition.

ISSUE

Whether the Court of Appeals erred in ruling that the respondent was denied due process in the cancellation of its IFMA.

RULING

Yes. The Supreme Court granted the petition, reversed the Court of Appeals Decision and Resolution, and reinstated the DENR Secretary’s Order cancelling IFMA No. R-9-040. The Court held that the respondent was not denied due process. The essence of due process is the opportunity to be heard. The records showed that the respondent was given this opportunity. It received notice of the evaluation, its representative participated in the entire evaluation process from the briefing to the field inspection and the exit conference, and was presented with the team’s findings during the exit conference. The respondent’s representative, Santiago, was asked for comments but stated he had none, only requesting a copy of the report. The subsequent denial of the motion for reconsideration by the DENR Secretary, which considered the respondent’s arguments, further satisfied due process. The Court emphasized that an IFMA is not an ordinary contract but a privilege granted by the state, imbued with public interest concerning the nation’s natural resources. The state has the police power to regulate or revoke such agreements for environmental protection and public welfare. The respondent’s gross failure to develop the area as mandated by the approved CDMP and the IFMA terms justified its cancellation. The constitutional provisions on non-impairment of contracts and due process do not preclude the state’s exercise of its police power for a legitimate public purpose.