The Supreme Court held that just compensation in agrarian reform cases must be determined by considering factors under Section 17 of Republic Act (RA) No. 6657 and related Department of Agrarian Reform (DAR) administrative orders. This decision emphasizes the mandatory nature of these guidelines, requiring courts to explain any deviation from the prescribed formulas to ensure fair valuation of acquired lands, balancing landowners’ rights and agrarian reform goals.

From Coconut Plantation to Agri-Economic Zone: What’s Fair Value?

This case, Land Bank of the Philippines vs. Spouses Esteban and Cresencia Chu, revolves around determining the just compensation for two parcels of agricultural land in Sorsogon acquired by the government under its agrarian reform program. One parcel was acquired under Presidential Decree No. 27 (PD 27), and the other under RA 6657. The landowners rejected the initial valuations offered by Land Bank of the Philippines (LBP), leading to administrative proceedings and eventual court battles to ascertain the proper amount of compensation.

The central legal question is how to fairly value land acquired for agrarian reform, balancing the interests of landowners and the government’s agrarian reform objectives. This involves navigating complex statutory frameworks, administrative guidelines, and judicial precedents to arrive at a determination of just compensation that is both equitable and legally sound.

The LBP argued that the Court of Appeals (CA) improperly considered extraneous factors like the rising value of lands and potential economic benefits to the community. Instead, LBP insisted on strictly applying RA 6657 and the formula provided in DAR Administrative Order (A.O.) No. 05-98. RA 6657, also known as the Comprehensive Agrarian Reform Law, provides for the redistribution of agricultural lands to landless farmers.

Conversely, the spouses Chu contended that the land’s strategic location and potential for economic development justified a higher valuation. They presented evidence of comparable sales and a municipal resolution declaring the area an agri-economic-industrial zone to support their claim for increased compensation. The Provincial Agrarian Reform Adjudication Board (PARAD) and the Regional Trial Court (RTC) initially sided with the spouses Chu, leading to the LBP filing a Petition for Review on Certiorari.

The Supreme Court emphasized that under Rule 45 of the Rules of Court, only questions of law may be raised. The Court found that the lower courts had misapprehended or erroneously appreciated facts, warranting a review of the evidence. The Court highlighted the mandatory nature of considering the valuation factors under Section 17 of RA 6657 and the formula under DAR A.O. No. 05-98. It emphasized that the determination of just compensation is a judicial function that must be exercised within the bounds of the law.

In Land Bank of the Philippines v. Gonzalez, the Supreme Court underscored that judges must take into “full consideration” the factors identified in RA 6657 and its implementing rules. Unless an administrative order is declared invalid, courts must apply it. Otherwise, the judge risks violating the agrarian reform law. The Court reaffirmed this principle in Alfonso v. Land Bank of the Philippines, giving “full constitutional presumptive weight and credit to Section 17 of RA 6657, DAR AO No.5 (1998) and the resulting DAR basic formulas.”

The Court restated the body of rules, clarifying that the factors listed under Section 17 of RA 6657 and its formulas provide a uniform framework for computing just compensation. This ensures that the amounts paid to landowners are not arbitrary or contradictory to the objectives of agrarian reform. The DAR formulas have a presumption of legality, and courts must consider them. Courts may relax the strict application of the formula in specific situations, provided they clearly explain their reasons based on the evidence.

However, the Court also noted that LBP failed to substantiate its valuation of P263,928.57. In Land Bank of the Philippines v. Livioco, the Court held that “in determining just compensation, LBP must substantiate its valuation.” This reiterates the ruling in Land Bank of the Philippines v. Luciano that LBP’s valuation is only an initial determination, not conclusive. The RTC, acting as a Special Agrarian Court (SAC), makes the final determination, considering the factors in Section 17 of RA 6657 and applicable DAR regulations. LBP’s valuation must be substantiated during the hearing to be considered sufficient.

In this case, the LBP failed to justify its valuation. While LBP maintained that it strictly applied the law and its implementing rules, it did not provide sufficient evidence. The LBP used the formula LV = (CNI x. 90) + (MV x .10), and while it sufficiently established the Capitalized Net Income (CNI) factor, it did not provide adequate support for the Market Value (MV) component. The Claims Valuation and Processing Form did not explain how the data and figures were derived, and no testimonial evidence was presented to corroborate the figures.

Furthermore, the Court rejected the valuations fixed by the PARAD and the RTC, which were affirmed by the CA, because they disregarded the formula set forth under DAR A.O. No. 05-98. These tribunals considered only the Comparable Sales (CS) factor to the exclusion of the CNI and MV factors. Respondents presented only two comparable sales transactions, which fell short of the requirements of DAR A.O. No. 05-98. The municipal resolution declaring the intent to develop Hacienda Chu as an agri-economic-industrial site could not be regarded as a comparable sales transaction because no sale transaction ever took place.

The Court also noted that the lower courts failed to consider the factors laid down in Section 17 of RA 6657. Instead, they primarily considered the potential of the land. In Land Bank of the Philippines v. Livioco, the Court reiterated that the potential use of a property should not be the principal criterion for determining just compensation. The fair market value of an expropriated property is determined by its character and price at the time of taking, not its potential uses.

Regarding the property acquired under PD 27, the CA incorrectly ruled that the formula under Executive Order (EO) 228 should be followed. The Supreme Court clarified that when the agrarian reform process is still incomplete, just compensation should be determined under Section 17 of RA 6657. In a number of cases, the Court has ruled that RA No. 6657 applies to agrarian reform processes not completed upon its effectivity. PD 27 and EO 228 have suppletory effect to RA No. 6657.

Moreover, the Court addressed the award of interest. It clarified that compounded interest is not proper when just compensation is determined under R.A. No. 6657. However, interest may be awarded in expropriation cases where there is a delay in the payment of just compensation. The Court emphasized that the interest imposed in case of delay is in the nature of damages. It ruled that LBP is bound to pay interest at 12% per annum from the time of taking until June 30, 2013, and 6% per annum from July 1, 2013, until fully paid.

The Supreme Court thus remanded the case to the RTC for the determination of just compensation, stressing that the factors laid down in Section 17 of RA 6657, as amended, and the formula translated by the DAR in its implementing rules are mandatory. The Court also directed the RTC to determine the date of taking of both properties, as this information was missing from the records. The LBP was permitted to submit Certificates of Land Ownership Award (CLOAs) and Emancipation Patents as evidence of taking.

FAQs

What was the key issue in this case?	The central issue was determining the just compensation for agricultural lands acquired by the government under agrarian reform programs, specifically under PD 27 and RA 6657. The landowners disputed the initial valuations offered by the Land Bank of the Philippines (LBP), leading to a legal battle over the fair value of the acquired properties.
What did the Supreme Court rule?	The Supreme Court ruled that just compensation must be determined by considering factors under Section 17 of RA 6657 and related DAR administrative orders. The Court remanded the case to the RTC for reevaluation, emphasizing the mandatory nature of these guidelines and the need for a clear explanation of any deviations from the prescribed formulas.
What factors should be considered in determining just compensation?	Section 17 of RA 6657 outlines factors such as the cost of acquisition, current value of like properties, nature and actual use of the property, income, owner’s valuation, tax declarations, and government assessments. These factors, as translated into formulas by the DAR, should be fully considered by the courts in determining just compensation.
What is the role of the Land Bank of the Philippines (LBP) in this process?	The LBP provides an initial valuation of the land, but this is not conclusive. The LBP must substantiate its valuation with clear and convincing evidence, and the final determination of just compensation rests with the Regional Trial Court (RTC) acting as a Special Agrarian Court (SAC).
How does RA 9700 affect the determination of just compensation in this case?	RA 9700, which amended RA 6657, generally applies to landholdings yet to be acquired and distributed. However, the Court clarified that “previously acquired lands wherein valuation is subject to challenge” shall be resolved pursuant to Section 17 of RA 6657 as amended.
Is interest applicable in this case?	Yes, the Court ruled that interest may be awarded in expropriation cases, particularly where there is a delay in the payment of just compensation. The LBP is obliged to pay interest at 12% per annum from the date of taking until June 30, 2013, and 6% per annum from July 1, 2013, until fully paid.
What is the significance of DAR Administrative Order No. 05-98?	DAR Administrative Order No. 05-98 provides the formula for calculating just compensation, translating the factors in Section 17 of RA 6657 into a mathematical framework. The Court emphasized that this formula is mandatory and may not be disregarded by the RTC.
What happens if the courts deviate from the DAR formula?	Courts may deviate from the strict application of the DAR formula if the specific circumstances warrant it, but they must clearly explain their reasons for doing so based on the evidence on record. The key is that the deviation must be reasonable and grounded in the facts of the case.
What evidence can be presented to determine the date of taking of the property?	The LBP may submit Certificates of Land Ownership Award (CLOAs) for RA 6657-acquired property and Emancipation Patents for PD 27-acquired land, which serve as conclusive proof of actual taking. Alternatively, it may present the Notice of Coverage, Notice of Valuation, Letter of Invitation to A Preliminary Conference, and Notice of Acquisition issued by the DAR.

This ruling reinforces the importance of adhering to the guidelines set forth in RA 6657 and related administrative orders when determining just compensation in agrarian reform cases. The Supreme Court’s decision underscores the judiciary’s role in ensuring a fair and equitable valuation process, protecting the rights of landowners while advancing the goals of agrarian reform.

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. SPOUSES ESTEBAN AND CRESENCIA CHU, G.R. No. 192345, March 29, 2017