In the case of Land Bank of the Philippines v. Heirs of Antonio Marcos, Sr., the Supreme Court addressed the crucial issue of determining just compensation for land acquired under the Comprehensive Agrarian Reform Program (CARP). The Court found that both the Provincial Adjudicator and the Regional Trial Court (sitting as a Special Agrarian Court) failed to properly apply the formula prescribed by the Department of Agrarian Reform (DAR) in valuing the subject properties. This ruling underscores the importance of adhering to established guidelines to ensure landowners receive fair compensation while upholding the objectives of agrarian reform. The case was remanded back to the lower court.

From Farms to Formulas: Can Courts Deviate from DAR’s Land Valuation?

The dispute arose from the acquisition of two landholdings owned by the heirs of Antonio Marcos, Sr., under Republic Act No. 6657, the Comprehensive Agrarian Reform Law (CARL). The Land Bank of the Philippines (LBP) initially valued the lands, but the heirs, through their representative, sought a higher valuation. This led to administrative proceedings before the Department of Agrarian Reform Adjudication Board (DARAB), which set aside LBP’s valuation and fixed a new, higher compensation. Dissatisfied, the LBP filed a petition for judicial determination of just compensation with the Regional Trial Court (RTC) sitting as a Special Agrarian Court (SAC). The RTC affirmed the DARAB’s valuation, a decision later upheld by the Court of Appeals (CA). The LBP then elevated the case to the Supreme Court, questioning whether the lower courts properly considered the valuation factors under Section 17 of R.A. 6657 and whether the PARAD could alter an alleged consummated contract between the government and respondents.

The Supreme Court emphasized that the determination of just compensation is a judicial function, explicitly vested in the RTC-SAC by Section 57 of R.A. No. 6657. However, this power is not without limitations. The Court referred to its previous ruling in Land Bank of the Philippines v. Yatco Agricultural Enterprise, clarifying that the RTC-SAC must adhere to the factors outlined in Section 17 of R.A. No. 6657, which have been translated into a basic formula by the DAR through its administrative orders. Specifically, DAR Administrative Order No. 5, series of 1998, provides a formula for land valuation based on factors like Capitalized Net Income (CNI), Comparable Sales (CS), and Market Value per Tax Declaration (MV).

The Court referenced Alfonso v. Land Bank of the Philippines, reiterating that courts should consider the factors stated in Section 17 of RA 6657, as translated into the applicable DAR formulas in their determination of just compensation for the properties covered by the said law. Courts may deviate or depart therefrom, provided that this departure or deviation is supported by a reasoned explanation grounded on the evidence on record.

Section 17 of R.A. No. 6657 states: “In determining just compensation, 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, shall be considered. The social and economic benefits contributed by the farmers and the farm workers 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 Court found that neither the PARAD nor the RTC-SAC applied or properly considered the DAR formula. Instead, they relied on evidence of bona fide sales transactions of nearby properties, deeming them comparable to the subject landholdings. While considering comparable sales is a valid factor, the Court noted that the lower tribunals failed to demonstrate how they integrated this factor into the overall valuation using the prescribed formula. The RTC-SAC’s decision lacked a reasoned explanation for its deviation from the DAR formula, which the Supreme Court deemed a critical oversight.

Addressing the LBP’s argument that a consummated contract existed based on the landowner’s initial acceptance of the LBP’s valuation, the Court clarified that the acquisition of lands under CARP is not governed by ordinary rules of contract. The implementation of R.A. No. 6657 is an exercise of the State’s police power and power of eminent domain, and the taking of private property through eminent domain does not create a contractual obligation.

As the Supreme Court stated, “acquisition of lands under the CARP is not governed by ordinary rules on obligations and contracts but by R.A. No. 6657 and its implementing rules.”

The Court emphasized that the LBP’s valuation is merely an initial determination and is not conclusive. The final determination of just compensation rests with the RTC-SAC, taking into account the factors provided in R.A. No. 6657 and the applicable DAR regulations. The landowner’s acceptance of the initial valuation does not preclude a subsequent determination of just compensation through administrative or judicial proceedings.

The Court concluded that a remand to the RTC was necessary for the reception of evidence and a proper determination of just compensation, strictly observing the factors enumerated under Section 17 of R.A. No. 6657 and the formula prescribed under the pertinent DAR administrative orders. This decision serves as a reminder to lower courts to adhere to the established legal framework when determining just compensation in agrarian reform cases, balancing the interests of landowners and the government’s objectives in implementing CARP.

The factors considered for just compensation are summarized in the table below:

Factor	Description
Cost of Acquisition	Original price paid for the land.
Current Value of Like Properties	Market value of similar lands in the area.
Nature, Actual Use, and Income	Type of land, its current use, and the income it generates.
Sworn Valuation by the Owner	Landowner’s assessment of the land’s value.
Tax Declarations and Government Assessments	Official records of land valuation for tax purposes.
Social and Economic Benefits	Contributions of farmers and the government to the property.
Non-Payment of Taxes or Loans	Outstanding obligations on the land.

FAQs

What was the key issue in this case?	The key issue was whether the lower courts properly determined the just compensation for land acquired under the Comprehensive Agrarian Reform Program, specifically regarding the application of the DAR formula.
What is the DAR formula for land valuation?	The DAR formula, outlined in Administrative Order No. 5, series of 1998, uses factors like Capitalized Net Income (CNI), Comparable Sales (CS), and Market Value per Tax Declaration (MV) to determine land value. The formula varies depending on the availability of these factors.
Can courts deviate from the DAR formula?	Yes, courts can deviate from the DAR formula, but they must provide a reasoned explanation based on the evidence on record for doing so. They must demonstrate why the strict application of the formula is not warranted.
Is the LBP’s initial land valuation final?	No, the LBP’s initial land valuation is not final. It serves as a preliminary assessment, and the final determination of just compensation rests with the RTC-SAC.
Does the landowner’s acceptance of the LBP valuation create a contract?	No, the landowner’s acceptance of the LBP’s initial valuation does not create a binding contract. The acquisition of land under CARP is governed by law and administrative rules, not ordinary contract principles.
What is the role of the RTC-SAC in determining just compensation?	The RTC-SAC has the original and exclusive jurisdiction to determine just compensation for lands taken under CARP. It must consider the factors outlined in R.A. No. 6657 and the DAR regulations.
What happens if the courts do not follow the correct procedures?	If the courts do not follow the correct procedures, such as applying the DAR formula or providing a reasoned explanation for deviating from it, the case may be remanded for further proceedings.
What is the significance of Section 17 of R.A. No. 6657?	Section 17 of R.A. No. 6657 outlines the factors that must be considered in determining just compensation, including the cost of acquisition, current value of like properties, and the land’s nature and actual use.
Why was the case remanded to the lower court?	The case was remanded because the Supreme Court found that neither the PARAD nor the RTC-SAC adequately applied the DAR formula or provided sufficient justification for deviating from it.

In conclusion, the Supreme Court’s decision in Land Bank of the Philippines v. Heirs of Antonio Marcos, Sr. reinforces the importance of adhering to the established legal framework for determining just compensation in agrarian reform cases. While courts have the discretion to deviate from the DAR formula, they must provide a clear and reasoned explanation for doing so, ensuring fairness to landowners while upholding 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. HEIRS OF ANTONIO MARCOS, SR., G.R. No. 175726, March 22, 2017