The Supreme Court ruled in Land Bank of the Philippines vs. Edgardo L. Santos that landowners are entitled to a twelve percent (12%) annual interest on unpaid just compensation for land taken under agrarian reform, calculated from the time of taking until full payment. This decision reinforces the principle that just compensation must be both fair and timely, and delays in payment necessitate the imposition of interest to offset the landowner’s losses. The ruling highlights the government’s responsibility to ensure landowners receive adequate compensation without undue delay, safeguarding their rights in agrarian reform processes. This ensures landowners are justly compensated for the economic losses incurred during the period their land was utilized for agrarian reform.

From Corn Fields to Courtrooms: When Does the Clock Start Ticking on Land Compensation?

Edgardo L. Santos owned three parcels of agricultural land in Camarines Sur, which were placed under the government’s Operation Land Transfer Program in 1984. The Department of Agrarian Reform (DAR) initially fixed the just compensation, but Santos found the valuation unreasonable and filed petitions. Dissatisfied with the PARAD’s valuation, the Land Bank of the Philippines (LBP) filed complaints before the Regional Trial Court (RTC). This legal journey eventually led to a Supreme Court decision regarding the proper calculation of interest on the unpaid compensation. At the heart of the dispute was the question of when the twelve percent (12%) interest on the unpaid just compensation should begin accruing. This case clarifies the importance of timely and fair compensation in agrarian reform.

The Supreme Court emphasized that the taking of land under Presidential Decree (PD) No. 27 occurs not on the date of the decree’s issuance, but upon the payment of just compensation. Since the agrarian reform process was incomplete in Santos’s case, the Court determined that just compensation should be calculated and concluded under Republic Act (RA) No. 6657, also known as the Comprehensive Agrarian Reform Law of 1988. The procedure for determining just compensation begins with LBP’s initial valuation, followed by DAR making an offer to the landowner. If the landowner rejects the offer, the DAR adjudicator conducts a summary administrative proceeding to determine the compensation. A party disagreeing with the DAR adjudicator’s decision may then appeal to the RTC, acting as a Special Agrarian Court (SAC), for a final determination of just compensation.

Landowners are entitled to withdraw the initial valuation of their land pending the final determination of just compensation. The LBP argued that the release of the initial valuation is contingent on the submission of all documentary requirements listed in DAR Administrative Order (AO) No. 2, Series of 2005. The Court rejected this argument, holding that imposing such a condition would unduly delay the payment of the amount guaranteed to the landowner. The Court clarified that requiring complete documentation as a precondition would protract the compensation process, which RA 6657 ensures should be immediate. As elucidated in LBP v. CA:

As an exercise of police power, the expropriation of private property under the CARP puts the landowner, and not the government, in a situation where the odds are already stacked against his favor. He has no recourse but to allow it. His only consolation is that he can negotiate for the amount of compensation to be paid for the expropriated property. As expected, the landowner will exercise this right to the hilt, but subject however to the limitation that he can only be entitled to a “just compensation.” Clearly therefore, by rejecting and disputing the valuation of the DAR, the landowner is merely exercising his right to seek just compensation. If we are to x x x [withhold] the release of the offered compensation despite depriving the landowner of the possession and use of his property, we are in effect penalizing the latter for simply exercising a right afforded to him by law.

The RTC’s leniency in expediting the payment procedure was considered fair, given that Santos had been deprived of his property rights since 1983 and had not yet received full compensation. Furthermore, the existence of certificates of title over the lands in question was not conclusively established, and LBP had judicially admitted Santos’s ownership based on tax declarations. Compliance with the required documents could still be directed before the full payment of just compensation, which remained undetermined at the time. The Court also noted that Santos’s inability to produce the titles was due to circumstances beyond his control.

The LBP also contended that the RTC was barred by res judicata from further determining just compensation for Lands 2 and 3, arguing that a final decision in CA-G.R. CV No. 75010 called only for a remand for computation purposes. The Supreme Court clarified the elements of res judicata:

Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by judgment. The doctrine of res judicata provides that a final judgment, on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of action. The elements of res judicata are (a) identity of parties or at least such as representing the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two (2) particulars is such that any judgment which may be rendered in the other action will, regardless of which party is successful, amount to res judicata in the action under consideration.

The Court found that the decision in CA-G.R. CV No. 75010 pertained to LBP’s legal standing, not the valuation of the lands, and its pronouncement on computation was obiter dictum, lacking the force of adjudication. The RTC’s original and exclusive jurisdiction over just compensation petitions, as vested by Section 57 of RA 6657, could not be unduly restricted. Regarding the award of twelve percent (12%) interest, the Court found LBP’s contention untenable, noting the significant delay and inadequacy of the initial valuation compared to the finally adjudged just compensation. The Court has consistently held that just compensation requires not only a fair amount but also timely payment.

In LBP v. Orilla, the Court emphasized that “prompt payment” involves both the immediate deposit of provisional compensation and the payment in full of the just compensation as determined by the courts. Therefore, interest is imposed in expropriation cases to compensate landowners for delays in payment, constituting an effective forbearance on the part of the State. Such interest is pegged at twelve percent (12%) per annum on the unpaid balance, reckoned from the time of taking or deprivation of use and benefit, such as when title is transferred or emancipation patents are issued, until full payment. The Court noted that unlike the six percent (6%) annual incremental interest, this twelve percent (12%) annual interest is a penalty for damages incurred due to payment delays.

The Court clarified that the twelve percent (12%) annual interest on the unpaid balance of just compensation for Land 3 should be computed from the time of taking until full payment, reversing the RTC and CA’s ruling to compute from January 1, 2010. However, the exact date of taking, based on the issuance of emancipation patents, was not available in the records. Thus, the case was remanded to the RTC for further evidence regarding the date of the grant of emancipation patents, which would serve as the starting point for the interest computation.

FAQs

What was the key issue in this case?	The key issue was determining the correct period for calculating the twelve percent (12%) interest on unpaid just compensation for land taken under agrarian reform. The Court had to decide when the interest should start accruing to fairly compensate the landowner.
When does the taking of land occur under PD 27?	The Supreme Court clarified that the taking of land under PD 27 occurs not on the date the decree was issued, but upon the payment of just compensation. This distinction is crucial for determining when interest begins to accrue on unpaid amounts.
What is the process for determining just compensation under RA 6657?	The process begins with the Land Bank of the Philippines (LBP) determining an initial valuation. The Department of Agrarian Reform (DAR) then makes an offer to the landowner, and if rejected, the DAR adjudicator conducts administrative proceedings, with a final appeal to the RTC.
Is the release of initial valuation conditional on submitting all documents?	No, the Supreme Court held that requiring complete documentation as a precondition to releasing the initial valuation would unduly delay payment. This goes against the intent of RA 6657, which aims for immediate compensation.
What is res judicata, and how did it apply in this case?	Res judicata prevents parties from relitigating issues already decided by a competent court. The Court found that a previous decision did not preclude the RTC from determining just compensation, as the prior case addressed LBP’s legal standing, not the land valuation.
Why is interest imposed on unpaid just compensation?	Interest is imposed to compensate landowners for delays in payment, as it constitutes an effective forbearance on the part of the State. This ensures landowners are justly compensated for the economic losses incurred during the period their land was utilized for agrarian reform.
How is the twelve percent (12%) annual interest calculated?	The twelve percent (12%) annual interest is calculated on the unpaid balance of the just compensation, starting from the time of taking (usually the date of emancipation patents) until full payment. This is a penalty for the delay in providing full and timely compensation.
What was the final ruling regarding the interest calculation?	The Supreme Court ruled that the twelve percent (12%) interest should be computed from the date of taking until full payment, and remanded the case to the RTC to determine the exact date of taking based on the grant of emancipation patents.

The Supreme Court’s decision in Land Bank of the Philippines vs. Edgardo L. Santos underscores the importance of providing timely and fair compensation to landowners affected by agrarian reform. The ruling clarifies that interest on unpaid compensation accrues from the time of taking, ensuring landowners are adequately compensated for any delays. This promotes fairness and upholds the constitutional principle of just compensation in agrarian reform processes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: LAND BANK OF THE PHILIPPINES VS. EDGARDO L. SANTOS, G.R. NO. 214021, January 27, 2016