In a dispute over land expropriation, the Supreme Court ruled that lower courts must strictly adhere to the guidelines and formulas set by the Department of Agrarian Reform (DAR) when determining just compensation. The case emphasizes that while courts have the power to determine just compensation, this authority must be exercised within the bounds of the law. This ruling ensures landowners receive fair compensation based on the property’s value at the time of taking, aligning with agrarian reform objectives while protecting property rights.

Land Valuation in Agrarian Reform: Did the RTC Overstep in Setting Compensation?

This case revolves around a disagreement between Land Bank of the Philippines (LBP) and Spouses Lydia and Carlos Cortez regarding the just compensation for a 6.0004-hectare property acquired under the Comprehensive Agrarian Reform Program (CARP). Spouses Cortez owned a coconut land in Daraga, Albay, which they voluntarily offered for acquisition in January 2000. Following a field investigation, the DAR issued a Memorandum Request to Value Land to LBP. LBP conducted a land valuation using Department of Agrarian Reform (DAR) Administrative Order (AO) No. 5, Series of 1998, arriving at an initial valuation of P106,542.98. However, Spouses Cortez rejected this amount.

The case eventually reached the Regional Trial Court (RTC) of Legazpi City, acting as a Special Agrarian Court, which fixed the compensation at P397,958.41. The RTC used the formula in AO No. 5, Series of 1998 but modified it by using June 30, 2009, from AO No. 1, Series of 2010, as the presumptive date of taking. LBP appealed, arguing that the RTC incorrectly applied AO No. 1, Series of 2010, which pertains to land acquisitions under Presidential Decree (P.D.) No. 27 and Executive Order (E.O.) No. 228, not R.A. No. 6657, the law governing this case. The Court of Appeals (CA) affirmed the RTC’s decision, prompting LBP to elevate the matter to the Supreme Court.

The Supreme Court began its analysis by emphasizing that while the determination of just compensation is a judicial function, this discretion must be exercised in accordance with the factors identified in R.A. No. 6657 and the applicable issuances of the DAR. The Court cited Landbank of the Philippines v. Spouses Banal, stating that the guidelines and formulas prescribed by the DAR have binding nature and mandatory application. The Court then referenced Alfonso v. Land Bank of the Philippines, clarifying that courts may deviate from a strict application of the formula, provided such departure is supported by a reasoned explanation grounded on the evidence on record.

For clarity, we restate the body of rules as follows: The factors listed under Section 17 of RA 6657 and its resulting formulas provide a uniform framework or structure for the computation of just compensation which ensures that the amounts to be paid to affected landowners are not arbitrary, absurd or even contradictory to the objectives of agrarian reform. Until and unless declared invalid in a proper case, the DAR formulas partake of the nature of statutes, which under the 2009 amendment became law itself, and thus have in their favor the presumption of legality, such that courts shall consider, and not disregard, these formulas in the determination of just compensation for properties covered by the CARP. When faced with situations which do not warrant the formula’s strict application, courts may, in the exercise of their judicial discretion, relax the formula’s application to fit the factual situations before them, subject only to the condition that they clearly explain in their Decision their reasons (as borne by the evidence on record) for the deviation undertaken. It is thus entirely allowable for a court to allow a landowner’s claim for an amount higher than what would otherwise have been offered (based on an application of the formula) for as long as there is evidence on record sufficient to support the award.

The Court found that the RTC erred in applying AO No. 1, Series of 2010, since the acquisition was made under R.A. No. 6657. The time of taking determines the applicable DAR administrative order. In this case, TCT No. T-127132 was issued on January 15, 2002, before the effectivity of R.A. No. 9700 and AO No. 1, Series of 2010. Furthermore, DAR AO No. 2, Series of 2009 clarifies that claim folders received by LBP prior to July 1, 2009, should be valued under Section 17 of R.A. No. 6657 before its amendment by R.A. No. 9700.

The ruling in Land Bank of the Philippines v. Kho was cited, which stated that the application of DAR AO No. 1, Series of 2010, should be limited to those where the claim folders were received on or subsequent to July 1, 2009. Since LBP received the claims folder on September 27, 2001, R.A. No. 6657 and AO No. 5, Series of 1998, apply. Therefore, the RTC had no basis to apply the presumptive date of taking under R.A. No. 9700 and AO No. 1, Series of 2010. This deviation from the law, DAR issuance, and established jurisprudence amounted to grave abuse of discretion, according to the Court.

Concerning imposable interest, the Supreme Court reiterated that just compensation includes not only the correct determination of the amount but also payment within a reasonable time. Legal interest is imposed to account for the delay in payment, as the just compensation due to the landowners was deemed an effective forbearance on the part of the State. The interest compensates for the variability of currency value over time and the opportunity loss from non-payment. However, the award of interest is computed only on the unpaid balance, which is the difference between the court-adjudged amount and the initial provisional deposit.

In line with recent jurisprudence and Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, Series of 2013, the legal interest was fixed at 12% per annum from the time of taking (January 15, 2002) until June 30, 2013. From July 1, 2013, until the finality of the Decision, the interest rate is 6% per annum. Thereafter, the total compensation earns legal interest at 6% per annum from the finality of the Decision until full payment. While the Court agreed that the CA erred in affirming the RTC Decision, it could not simply adopt LBP’s preliminary determination of just compensation. The final determination is a judicial function, necessitating the reception of evidence to establish the facts and figures to be used.

Consequently, the case was remanded to the RTC, acting as a Special Agrarian Court, for the reception of evidence to determine the just compensation due to Spouses Cortez, following the guidelines in Section 17 of R.A. No. 6657 and DAR AO No. 5, Series of 1998. This ensures a fair and legally sound determination of the compensation owed to the landowners, aligning with the principles of agrarian reform and property rights.

FAQs

What was the key issue in this case?	The key issue was whether the Regional Trial Court (RTC) correctly determined the just compensation for a land acquired under the Comprehensive Agrarian Reform Program (CARP) by applying an incorrect administrative order. Specifically, the RTC used Department of Agrarian Reform (DAR) Administrative Order (AO) No. 1, Series of 2010 instead of AO No. 5, Series of 1998.
What is just compensation in the context of agrarian reform?	Just compensation refers to the full and fair equivalent of the property taken from its owner by the government for agrarian reform purposes. It includes not only the fair market value of the land at the time of taking but also the timely payment of that value to the landowner.
Why did the Supreme Court remand the case to the RTC?	The Supreme Court remanded the case because it found that the RTC had incorrectly applied AO No. 1, Series of 2010, which led to an improper valuation of the land. The remand allows the RTC to receive evidence and determine just compensation in accordance with the applicable guidelines and regulations.
What is the significance of DAR AO No. 5, Series of 1998?	DAR AO No. 5, Series of 1998, provides the rules and regulations governing the valuation of lands voluntarily offered or compulsorily acquired under Republic Act No. 6657. It provides a formula for determining land value based on factors such as Capitalized Net Income (CNI), Comparable Sales (CS), and Market Value per Tax Declaration (MV).
When is DAR AO No. 1, Series of 2010 applicable?	DAR AO No. 1, Series of 2010, is applicable to land acquisitions under Presidential Decree No. 27 and Executive Order No. 228, and for claim folders received by Land Bank of the Philippines (LBP) on or after July 1, 2009. It provides guidelines for valuing tenanted rice and corn lands.
What interest rates apply to unpaid just compensation?	The legal interest is fixed at 12% per annum from the time of taking until June 30, 2013, and 6% per annum from July 1, 2013, until the finality of the Decision. Thereafter, the total compensation earns legal interest at 6% per annum from the finality of the Decision until full payment.
What factors should courts consider when determining just compensation?	Courts should consider the cost of acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn valuation by the owner, the tax declarations, and the assessment made by government assessors. They should also consider the social and economic benefits contributed by the farmers and the farm workers and by the Government to the property.
What is the role of Land Bank of the Philippines (LBP) in land acquisition?	The Land Bank of the Philippines (LBP) is responsible for determining the initial valuation of lands acquired under the Comprehensive Agrarian Reform Program (CARP) and for depositing the compensation in the names of the landowners. LBP also represents the government in legal disputes regarding just compensation.

The Supreme Court’s decision underscores the importance of adhering to established legal guidelines and regulations in agrarian reform cases, particularly in determining just compensation. By clarifying the proper application of DAR administrative orders and interest rates, the Court ensures that landowners receive fair and timely compensation for their expropriated properties, thereby balancing the interests of agrarian reform and property rights.

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 LYDIA G. CORTEZ AND CARLOS CORTEZ, G.R. No. 210422, September 07, 2022