The Supreme Court ruled that just compensation for land acquired under the Comprehensive Agrarian Reform Program (CARP) must be determined based on its fair market value at the time of taking, considering factors outlined in Republic Act No. 6657 and relevant Department of Agrarian Reform (DAR) regulations. The Court emphasized that while DAR formulas should be considered, courts have the discretion to deviate from them if warranted by specific circumstances, ensuring a fair and just valuation process. This decision reinforces the judiciary’s role in safeguarding landowners’ rights while upholding the objectives of agrarian reform.

Land Valuation Dispute: When Does “Taking” Determine Just Compensation?

This case revolves around a dispute between Land Bank of the Philippines (LBP) and Rural Bank of Hermosa (Bataan), Inc. (RBHI) concerning the just compensation for a 1.572-hectare agricultural land acquired by the government under CARP. RBHI voluntarily offered to sell the land, but disagreed with LBP’s valuation of P28,282.09, which was based on DAR Administrative Order No. 17, Series of 1989, as amended. The key legal question is determining the appropriate method and timing for calculating just compensation in agrarian reform cases.

The LBP initially valued the land using the formula LV = (CNI x .70) + (MV x .30), but RBHI rejected this valuation. After administrative proceedings, the Office of the Provincial Adjudicator adopted LBP’s valuation. Dissatisfied, RBHI filed a petition with the Regional Trial Court (RTC), sitting as a Special Agrarian Court (SAC), seeking a determination of just compensation or the option to withdraw its voluntary offer to sell (VOS). The RTC found LBP’s valuation too low and fixed the just compensation at P30.00 per square meter, based on the land’s accessibility and location. The Court of Appeals (CA) affirmed the RTC’s decision, leading LBP to appeal to the Supreme Court.

The Supreme Court emphasized that in agrarian reform cases where just compensation is yet to be settled, it should be determined and concluded under Republic Act No. 6657 (CARP Law), as amended. The Court reiterated the principle that the fair market value of expropriated property is determined by its character and price at the time of taking.

“For purposes of determining just compensation, the fair market value of an expropriated property is determined by its character and its price at the time of taking.”

The time of taking refers to when the landowner is deprived of the use and benefit of their property, such as when title is transferred to the Republic of the Philippines or Certificates of Land Ownership Award (CLOAs) are issued to farmer-beneficiaries. Section 17 of RA 6657, as amended, outlines several factors to be considered in determining just compensation, including the acquisition cost, current value of like properties, nature and actual use of the property, owner’s sworn valuation, tax declarations, and assessments made by government assessors.

While DAR administrative orders (AOs) provide formulas for calculating just compensation, the Supreme Court clarified that these are not binding on the courts. The determination of just compensation is a judicial function, and courts must consider the factors in Section 17 of RA 6657. In Alfonso v. LBP, the Court provided guidance on the application of DAR formulas:

For the guidance of the bench, the bar, and the public, we reiterate the rule: Out of regard for the DAR’s expertise as the concerned implementing agency, courts should henceforth consider the factors stated in Section 17 of RA 6657, as amended, as translated into the applicable DAR formulas in their determination of just compensation for the properties covered by the said law. If, in the exercise of their judicial discretion, courts find that a strict application of said formulas is not warranted under the specific circumstances of the case before them, they may deviate or depart therefrom, provided that this departure or deviation is supported by a reasoned explanation grounded on the evidence on record. In other words, courts of law possess the power to make a final determination of just compensation.

The Court found that the CA erred in upholding the RTC’s valuation, as the RTC only considered the nature of the land’s use and assessed value without showing that other factors under Section 17 of RA 6657 were taken into account. The Supreme Court also declined to adopt LBP’s computation, as it lacked sufficient evidence to support the amounts used. Consequently, the case was remanded to the RTC for further proceedings.

The Court provided guidelines for the RTC to follow on remand. The evidence presented must be based on values prevalent at the time of taking for similar agricultural lands. The RTC should consider the factors in Section 17 of RA 6657, as amended, prior to its amendment by RA 9700, as translated into the applicable DAR formula. Deviation from the DAR formula is permissible, provided a reasoned explanation is given. Interest may be awarded as warranted by the circumstances, with legal interest at 12% per annum from the date of taking until June 30, 2013, and 6% per annum thereafter until fully paid.

FAQs

What was the key issue in this case?	The primary issue was determining the correct method for valuing just compensation for land acquired under the Comprehensive Agrarian Reform Program (CARP), specifically focusing on the factors to be considered and the weight given to DAR formulas.
What is the “time of taking” in agrarian reform?	The “time of taking” refers to the point when the landowner is deprived of the use and benefit of their property, such as when the title is transferred to the Republic of the Philippines or Certificates of Land Ownership Award (CLOAs) are issued to farmer-beneficiaries.
Are courts bound by the DAR’s land valuation?	No, courts are not strictly bound by the DAR’s land valuation. While they should consider the DAR’s valuation and formulas, they have the discretion to deviate if warranted by the specific circumstances of the case, as long as they provide a reasoned explanation.
What factors should courts consider in determining just compensation?	Courts should consider factors outlined in Section 17 of RA 6657, including the acquisition cost of the land, the current value of like properties, the nature and actual use of the property, the owner’s sworn valuation, tax declarations, and assessments made by government assessors.
What was the outcome of the case?	The Supreme Court reversed the Court of Appeals’ decision and remanded the case to the Regional Trial Court (RTC) for further proceedings to determine just compensation in accordance with the guidelines set forth in the Supreme Court’s decision.
What is the legal interest rate applicable to unpaid just compensation?	Legal interest on the unpaid balance is pegged at 12% per annum from the date of taking until June 30, 2013, and 6% per annum thereafter until fully paid, in line with Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, Series of 2013.
Why did the Supreme Court remand the case to the RTC?	The Supreme Court remanded the case because the RTC failed to consider all the factors outlined in Section 17 of RA 6657 and because LBP did not present sufficient evidence to support its valuation.
What is the significance of Alfonso v. LBP in determining just compensation?	The Alfonso v. LBP case clarifies that courts should consider the DAR’s formulas in determining just compensation but are not strictly bound by them, allowing for deviation when warranted by specific circumstances and supported by evidence.

This decision provides clarity on the factors and processes involved in determining just compensation under CARP, reinforcing the judiciary’s role in ensuring fairness and equity in agrarian reform. While DAR formulas serve as a guide, courts retain the discretion to ensure that just compensation reflects the true value of the land at the time of taking, considering all relevant factors.

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. RURAL BANK OF HERMOSA (BATAAN), INC., G.R. No. 181953, July 25, 2017