The Supreme Court ruled that the just compensation for land acquired under the Comprehensive Agrarian Reform Program (CARP) must consider the actual land use at the time of taking. This decision emphasizes that landowners are entitled to fair compensation based on the property’s condition when it was expropriated, including payment of interest for delays, ensuring they are not unduly penalized during the valuation process. The Court clarified that while the Department of Agrarian Reform’s (DAR) valuation formulas provide guidance, courts have the discretion to adjust them to achieve just compensation.

From Coconut Dreams to Corn Realities: Upholding Land Use in Just Compensation

This case revolves around a dispute over just compensation for land acquired by the government under CARP from Eugenia Uy, Romualdo Uy, Jose Uy, Renato Uy, Aristio Uy, and Teresita Uy-Olveda (respondents). Land Bank of the Philippines (LBP), the petitioner, challenged the Court of Appeals (CA) decision, which had modified the Regional Trial Court’s (RTC) ruling on the valuation of the respondents’ land. The central issue was whether the entire property should be considered coconut land for valuation purposes, even though a portion was used for corn production.

The respondents owned agricultural land in Matataja, Mulanay, Quezon, used for coconut and corn production. In 1995, the property was placed under CARP, prompting LBP to initially value it at P516,484.84. After respondents rejected this valuation, LBP updated it to P1,048,635.38 following DAR Administrative Order No. 5, Series of 1998 (DAR A.O. No. 5-1998), but respondents still declined. This led to administrative proceedings before the DAR Adjudication Board, which affirmed the updated valuation.

Dissatisfied, the respondents filed a complaint with the RTC of Lucena City, acting as a Special Agrarian Court, seeking a determination of just compensation. The RTC ordered LBP to recompute the compensation only for the coconut portion, as the valuation for the corn portion was uncontested. The court directed LBP to use the formula in DAR A.O. No. 5-1998, along with data from the Philippine Coconut Authority (PCA) and the Assessor’s Office, particularly regarding the local coconut population. The PCA certification indicated an average of 160 coconut trees per hectare.

LBP appealed to the CA, which declared the PCA certification unreliable for coconut land valuation and remanded the case to the RTC to determine the number of coconut trees. Following a Commissioners’ Report, the RTC treated the entire property as coconut land and ordered LBP to pay P3,093,370.50. LBP opposed this, citing prematurity and a lower valuation. The RTC then reconsidered, valuing the coconut portion at P80,000.00 per hectare, based on a ratio between the commissioners’ count and PCA data, resulting in a total of P2,877,040.00, less the initial payment.

LBP again appealed, arguing for a lower valuation and pointing out the corn portion’s separate valuation. The CA ruled that LBP was estopped from disputing that the entire property was coconut land. However, it faulted the RTC for not hearing the parties on the PCA data and found the PCA data inapplicable, applying Section A.1 of DAR A.O. No. 5-1998 to arrive at a valuation of P65,063.88 per hectare. The CA ordered LBP to pay P2,339,892.32, plus interest. This prompted LBP to file a Petition for Review with the Supreme Court.

The Supreme Court found partial merit in LBP’s petition, agreeing that the CA erred in considering the entire landholding as coconut land and in applying estoppel against LBP. The Court emphasized that LBP had consistently maintained the mixed nature of the land, used for both coconut and corn production, throughout the proceedings. This was evident in LBP’s comments on the Commissioners’ Report, opposition to the writ of execution, formal offer of evidence, and motion for reconsideration. These documents clearly distinguished between the coconut and corn portions of the land.

The Court underscored that the CA’s earlier decision in CA-G.R. SP No. 93647 had already established that the property was planted with both corn and coconut at the time of taking. The remand order was specifically for determining the coconut tree population on the coconut land, which comprised only 17 hectares. This reaffirms the principle that the nature and character of the land at the time of taking are crucial for determining just compensation. The logic behind the remand order was to accurately assess the property’s condition at the start of the expropriation process.

The Court acknowledged the physical changes that likely occurred on the property between the taking in 1995 and the subsequent appeals. However, it found the CA’s valuation erroneous because it exceeded the 17-hectare coconut land that was the only point of contention. The determination of just compensation is a judicial function of the RTC acting as a special agrarian court, guided by R.A. No. 6657 and the DAR’s valuation formula. This ensures that landowners receive a fair equivalent of their expropriated property.

The Supreme Court cited several relevant cases, including Land Bank of the Philippines v. Yatco Agricultural Enterprises, Land Bank of the Philippines v. Peralta, and Department of Agrarian Reform v. Spouses Sta. Romana, which affirm the judiciary’s role in determining just compensation. These cases emphasize that courts must be guided by the valuation factors under Section 17 of R.A. No. 6657 and DAR A.O. No. 5-1998. While the DAR provides a formula, courts may deviate from it if warranted by the circumstances, provided they explain their reasoning.

Section 17 of R.A. No. 6657 lists the factors to consider in determining just compensation:

SEC. 17. Determination of Just Compensation. – In determining just compensation, the cost of acquisition of the land, the current value of the like properties, its nature, actual use and income, the sworn valuation by the owner, the tax declarations, and the assessment made by government assessors shall be considered. The social and economic benefits contributed by the farmers and the farmworkers and by the Government to the property as well as the non-payment of taxes or loans secured from any government financing institution on the said land shall be considered as additional factors to determine its valuation.

The DAR A.O. No. 5-1998 provides a formula for determining land value, using factors such as Capitalized Net Income (CNI), Comparable Sales (CS), and Market Value (MV):

LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)

The Court observed that the parties had conceded the application of this formula, disputing only the coconut land’s productivity level. The Court found that the RTC’s deviation from the commissioners’ findings was not adequately explained and that the PCA certification, which had been deemed unreliable, was improperly used. Land valuation is not an exact science, but it requires careful consideration and prudence. Because of the shortcomings in the RTC’s valuation of the coconut land, the Court approved the CA’s computation, which was based on data obtained by the commissioners and applied the guidelines under DAR A.O. No. 5-1998.

Given the absence of data on Comparative Sales, the Court applied Section 17.A.1 of DAR A.O. No. 5-1998, using Capitalized Net Income and Market Value from the Commissioners’ Report:

LV = (CNI x 0.9) + (MV x 0.1)
LV = (P66,780.00 x 0.9) + (P49,618.80 x 0.1)
LV = P60,102.00 + P4,961.88
LV = P65,063.88 per hectare

The Supreme Court also addressed LBP’s liability to pay legal interest. Just compensation includes not only the correct amount but also prompt payment. Delay in payment makes the compensation unjust, depriving the owner of the use of their land. In Apo Fruits Corporation v. Land Bank of the Philippines, the Court held that interest on unpaid just compensation is a basic requirement of fairness. The owner’s loss includes the property’s income-generating potential, necessitating full and immediate compensation. If full compensation is delayed, the State must compensate for the lost earning potential.

The Court validated the CA’s pronouncement that LBP is liable to pay interest on the outstanding just compensation, as it constitutes a forbearance by the State. The just compensation due shall be based on the per-hectare value of the 17-hectare coconut land (P65,063.88), combined with the original valuation of the cornland, minus the initial payment of P516,484.84. LBP’s liability to pay interest shall be at 12% per annum from the time of taking until June 30, 2013, and at 6% per annum thereafter until full payment.

FAQs

What was the key issue in this case?	The key issue was determining the just compensation for land acquired under the Comprehensive Agrarian Reform Program (CARP), specifically whether the entire property should be valued as coconut land even if a portion was used for corn production. The Supreme Court emphasized that the actual land use at the time of taking should be the basis for valuation.
What did the Supreme Court decide?	The Supreme Court ruled that the just compensation should be based on the actual land use at the time of taking, distinguishing between the coconut and corn portions of the property. It directed Land Bank of the Philippines (LBP) to pay the landowners based on this distinction, including interest on the unpaid amount.
What is the significance of DAR A.O. No. 5-1998?	DAR A.O. No. 5-1998 provides the formula for determining land value, using factors such as Capitalized Net Income (CNI), Comparable Sales (CS), and Market Value (MV). The Supreme Court noted that while this formula is a guide, courts may deviate from it if the circumstances warrant, provided they explain their reasoning.
Why was the Philippine Coconut Authority (PCA) certification deemed unreliable?	The PCA certification was deemed unreliable because it pertained to the average number of coconut trees per hectare in the 22 municipalities within the locality, rather than a reasonable estimate of the coconut population on the specific property in question. The Court stated it was too broad for accurate valuation.
What factors are considered in determining just compensation?	Section 17 of R.A. No. 6657 specifies the factors to consider in determining just compensation, including the cost of acquisition, current value of like properties, nature, actual use and income, sworn valuation by the owner, tax declarations, and government assessments. These factors ensure a fair valuation process.
Why is interest added to the just compensation?	Interest is added to the just compensation to account for the delay in payment from the time of taking until the landowner is fully compensated. This compensates the landowner for the lost income-generating potential of the property during the period of delay.
What was the role of the Commissioners’ Report?	The Commissioners’ Report provided raw data used by the Court of Appeals (CA) to compute the per-hectare value of the coconut land. This data included Capitalized Net Income and Market Value, which were used in conjunction with the DAR A.O. No. 5-1998 formula.
What is the legal basis for payment of legal interest?	Interest is added to the just compensation to account for the delay in payment from the time of taking until the landowner is fully compensated. This compensates the landowner for the lost income-generating potential of the property during the period of delay.
Can you use your owned assessment and valuation to claim for just compensation?	Yes, if it can be proven that it fairly reflects the valuation of the property at the time of taking.

In conclusion, the Supreme Court’s decision underscores the importance of considering the actual use of land at the time of taking when determining just compensation under CARP. Landowners are entitled to a fair valuation based on the property’s condition at the time of expropriation, with interest added to compensate for delays in payment. This decision ensures that landowners are not unduly penalized and receive just compensation for their property.

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. EUGENIA UY, G.R. No. 221313, December 05, 2019