The Supreme Court held that when land acquisition under Presidential Decree (PD) No. 27 remains incomplete upon the effectivity of Republic Act (RA) No. 6657, the process must be completed under the new law. This ruling ensures that landowners receive just compensation based on the more current and equitable standards set forth in RA 6657, rather than the outdated valuations of PD 27. This decision safeguards landowners’ rights by mandating a fair valuation process that reflects the true value of their property at the time compensation is determined.

From Rice Fields to Fair Value: Determining Just Compensation in Agrarian Reform

The case of Land Bank of the Philippines v. Heirs of Maximo Puyat and Gloria Puyat revolves around the determination of just compensation for land acquired under Presidential Decree (PD) No. 27, but with the compensation process initiated after the enactment of Republic Act (RA) No. 6657. The central legal question is whether the valuation of the land should be based on the older PD 27 and its implementing guidelines, or on the more recent RA 6657, which provides a different formula for calculating just compensation. This case highlights the tension between laws enacted at different times and their impact on the rights of landowners in agrarian reform.

The factual backdrop involves a parcel of riceland owned by the Puyats, which was placed under Operation Land Transfer pursuant to PD 27. Emancipation patents were issued to farmer-beneficiaries in December 1989, and these were annotated on the Puyats’ title in March 1990. However, the Puyats did not receive any compensation for the cancellation of their title. It was only in September 1992 that Land Bank received instructions from the Department of Agrarian Reform (DAR) to pay just compensation, offering an initial valuation that the Puyats rejected as “ridiculously low.” This led to a complaint filed by the Puyats for the determination and payment of just compensation with the Regional Trial Court (RTC).

The RTC ruled that while the property was appropriated pursuant to PD 27, its valuation should be made in accordance with Section 17 of RA 6657. The court considered factors such as the property’s location in an agro-industrial area, its potential yield, and the zonal value determined by the Bureau of Internal Revenue (BIR). Accordingly, the RTC declared that the reasonable compensation for the property should be P100,000.00 per hectare. Furthermore, the court ordered the DAR, through Land Bank, to pay 6% legal interest per annum from the date of taking until the amount is fully paid, recognizing the delay in compensation. Land Bank appealed this decision, arguing that the trial court erred in applying Section 17 of RA 6657 and that the valuation should be limited to the formula under PD 27 and Executive Order (EO) No. 228.

The Court of Appeals (CA) affirmed the RTC’s decision, emphasizing that the determination of just compensation is a judicial function and cannot be unduly restricted by administrative formulas. The CA held that courts can rely on the factors in Section 17 of RA 6657, even if these factors are not present in PD 27 or EO 228. The appellate court also upheld the imposition of legal interest, noting that the Puyats were deprived of their property without just compensation. Land Bank then filed a Petition for Review with the Supreme Court, raising the same issues.

The Supreme Court addressed the core issue of which law should govern the determination of just compensation. The Court reiterated its established jurisprudence that when the government takes property pursuant to PD 27 but fails to pay just compensation until after RA 6657 took effect, the compensation should be determined under RA 6657. The Court cited Land Bank of the Philippines v. Natividad, where it was explained that it would be inequitable to determine just compensation based on the guidelines of PD 27 and EO 228 due to the DAR’s prolonged failure to determine just compensation. The Court emphasized that just compensation should be the full and fair equivalent of the property taken.

Land Bank’s contention that the property was acquired for purposes of agrarian reform on October 21, 1972, the time of the effectivity of PD 27, ergo just compensation should be based on the value of the property as of that time and not at the time of possession in 1993, is likewise erroneous. In Office of the President, Malacañang, Manila v. Court of Appeals, we ruled that the seizure of the landholding did not take place on the date of effectivity of PD 27 but would take effect [upon] payment of just compensation.

The Court found that since the taking of the Puyats’ property and the initial valuation occurred during the effectivity of RA 6657, the process should be completed under RA 6657. PD 27 and EO 228 have only a suppletory effect, meaning they apply only when RA 6657 is insufficient. As RA 6657 adequately provides for the determination of just compensation in Section 17, petitioner cannot insist on applying PD 27, which would render Section 17 of RA 6657 inutile.

Regarding the interest rate, Land Bank argued that the formula in DAR AO No. 13, series of 1994, already provides for 6% compounded interest, making the additional imposition of 6% interest unwarranted. However, the Court found that this argument was fallacious since the lower courts did not apply DAR AO No. 13. The Court acknowledged that current jurisprudence sets the interest rate for delays in agrarian cases at 12% per annum. However, because the respondents did not contest the lower courts’ awarded interest rate and instead sought affirmance of the appellate court’s decision, the Court refrained from disturbing the imposed interest rate to maintain due process.

Land Bank also argued that RA 9700, which further amended RA 6657, rendered the Petition moot and that the case should be remanded to the trial courts for valuation in accordance with Section 17 of RA 6657, as amended by RA 9700. The Court rejected this argument, noting that RA 9700 took effect when the case was already submitted for resolution. Furthermore, the DAR’s own implementing rules of RA 9700, Administrative Order No. 02, series of 2009 (DAR AO No. 02-09), authorize the valuation of lands in accordance with the old Section 17 of RA 6657, as amended (prior to further amendment by RA 9700), so long as the claim folders for such lands were received by Land Bank before RA 9700’s effectivity. In this case, the claim folder was received in 1992, negating the need for remand.

VI. Transitory Provision

x x x x

[W]ith respect to land valuation, all Claim Folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of R.A. No. 6657 prior to its amendment by R.A. No. 9700.

Finally, Land Bank argued that the trial and appellate courts disregarded the basic valuation formula in DAR AO No. 5, series of 1998, which implements Section 17 of RA 6657. The Court disagreed, stating that the determination of just compensation is a judicial function, and courts should not be unduly restricted. While the courts should be mindful of the DAR’s formulas, they are not strictly bound to adhere to them if the situations do not warrant it. The Court emphasized that the courts below considered the factors provided in Section 17 of RA 6657, such as the nature of the property, its actual use, the crops planted, and its value according to government assessors.

x x x [T]he basic formula and its alternatives – administratively determined (as it is not found in Republic Act No. 6657, but merely set forth in DAR AO No. 5, Series of 1998) – although referred to and even applied by the courts in certain instances, does not and cannot strictly bind the courts. To insist that the formula must be applied with utmost rigidity whereby the valuation is drawn following a strict mathematical computation goes beyond the intent and spirit of the law. The suggested interpretation is strained and would render the law inutile.

The Court also expressed concern about the DAR and Land Bank’s nonchalant attitude in depriving landowners of their properties without adhering to legal requirements such as notice, valuation, and deposit of initial valuation. The Court reminded the DAR and Land Bank to give as much regard for the law when taking property as they do when ordered to pay for them, underscoring that the rights of landowners cannot be lightly set aside in the pursuit of agrarian reform.

FAQs

What was the key issue in this case?	The central issue was determining which law, PD 27 or RA 6657, should govern the valuation of land acquired under agrarian reform when the compensation process was initiated after RA 6657 took effect.
What did the Supreme Court rule regarding the applicable law?	The Supreme Court ruled that RA 6657 should govern the valuation of land in such cases, with PD 27 having only a suppletory effect. This ensures a more current and equitable valuation for landowners.
Why did the Court favor applying RA 6657 over PD 27?	The Court favored RA 6657 because it provides a more comprehensive and updated framework for determining just compensation, reflecting the property’s value at the time of actual valuation rather than at the time PD 27 was enacted.
What factors are considered under RA 6657 for determining just compensation?	Under RA 6657, factors such as the cost of acquisition, current value of like properties, nature, actual use, income, sworn valuation by the owner, tax declarations, and assessments by government assessors are considered.
Did the Court impose legal interest on the just compensation?	Yes, the Court upheld the imposition of 6% legal interest per annum from the date of taking until fully paid, recognizing the delay in compensating the landowners.
What was Land Bank’s argument regarding the interest rate?	Land Bank argued that the formula in DAR AO No. 13 already provided for a 6% compounded interest, making the additional imposition redundant, but this argument was rejected by the Court.
Was the case remanded to the trial court for recomputation under RA 9700?	No, the Court did not remand the case, noting that RA 9700 took effect when the case was already submitted for resolution and that the DAR’s own rules did not require recomputation in such circumstances.
What is the significance of DAR AO No. 02-09 in this case?	DAR AO No. 02-09 clarifies that claim folders received by Land Bank before July 1, 2009, should be valued under Section 17 of RA 6657 prior to its amendment by RA 9700, supporting the Court’s decision not to remand the case.
What was Land Bank’s argument regarding DAR AO No. 5, series of 1998?	Land Bank argued that the lower courts disregarded the valuation formula in DAR AO No. 5, but the Court held that while the courts should consider the formula, they are not strictly bound by it.
What was the Court’s final message to DAR and Land Bank?	The Court reminded DAR and Land Bank to ensure compliance with legal requirements when acquiring land and to respect the rights of landowners, emphasizing that these rights cannot be lightly set aside in the name of agrarian reform.

This case clarifies the appropriate legal framework for determining just compensation in agrarian reform cases when the process spans different legislative regimes. It reinforces the judiciary’s role in ensuring equitable compensation for landowners and underscores the importance of timely and lawful procedures in agrarian land acquisition.

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. Heirs of Maximo Puyat and Gloria Puyat, G.R. No. 175055, June 27, 2012