G.R. No. L-14711 - Smith, Bell and Co., Ltd. vs. Manila Port Service and Manila Railroad Co., Inc.

Petitioner Land Bank of the Philippines (LBP) is a government financial institution designated under Section 64 of Republic Act No. 6657 as the financial intermediary of the agrarian reform program.
Respondent Emiliano R. Santiago, Jr. is an heir of Emiliano F. Santiago, the registered owner of an 18.5615-hectare parcel of land in Laur, Nueva Ecija.
The subject property was covered by Transfer Certificate of Title (TCT) No. NT-60359.
The case originated as a petition for judicial determination of just compensation in an agrarian matter, later reaching the Supreme Court via a petition for review on certiorari.

Under the government Operation Land Transfer (OLT) Program pursuant to Presidential Decree No. 27, the Department of Agrarian Reform (DAR) acquired 17.4613 hectares of the subject property.
LBP and DAR computed just compensation using the valuation formula under P.D. No. 27 and Executive Order No. 228.
The valuation rule stated that, to determine the cost of land to be transferred to tenant-farmers, the value of the land equaled two and one-half (2-1/2) times the average harvest of three normal crop years immediately preceding the promulgation of the decree.
Executive Order No. 228, Sec. 2 provided that the valuation of rice and corn lands covered by P.D. No. 27 would be based on average gross production determined by the Barangay Committee on Land Production (BCLP) and then multiplied by 2.5, the result multiplied by specific government support prices (GSP) for one cavan of specified weights, so that: Land Value (LV) = (Average Gross Production [AGP] x 2.5 Hectares x Government Support Price [GSP]).
LBP and DAR pegged the land value at 3,915 cavans of palay, using an AGP based on three normal crop years preceding the promulgation of P.D. No. 27, consisting of:

Preliminary compensation, release to heirs, and payment of incremental interest

Emiliano F. Santiago died earlier on November 1, 1987.
In 1992, LBP reserved in trust for the heirs an amount of P135,482.12 as just compensation computed using the formula with P35.00 as the GSP per cavan of palay for the year 1972 under Executive Order No. 228.
The land valuation was broken down into irrigated and unirrigated portions, resulting in a total of 3,870.92 cavans of palay valued at P35.00, yielding the total reserved amount of P135,482.12.
The amount of P135,482.12 was released to Santiago’s heirs on April 28, 1998, pursuant to the Court’s decision in Land Bank of the Philippines v. Court of Appeals.
LBP also paid the heirs incremental interest totaling P353,122.62 on May 21, 1998 and June 1, 1998, representing the incremental interest of 6% on the preliminary compensation, compounded annually for 22 years, pursuant to PARC Resolution No. 94-24-1 and DAR Administrative Order (AO) No. 13, series of 1994.

On November 20, 1998, respondent filed a petition before the RTC of Cabanatuan City, Branch 23, acting as Special Agrarian Court (SAC Branch 23), for approval and appraisal of just compensation due on the subject property.
The case was docketed as Agrarian Case No. 125-AF.
Respondent agreed with the land valuation of 3,915 cavans of palay.
Respondent claimed that the 1998 GSP per cavan should be used in the computation, contending it was P400.00.
Respondent also sought imposition of incremental interest of 6% compounded annually from 1972 to 1998 or for 26 years.
Respondent further asked that the DAR return the unacquired portion of the subject property.

On January 21, 2000, SAC Branch 23 rendered a decision ordering LBP to pay respondent P1,039,017.88, representing the balance of the land valuation with legal interest at 12% from 1998 until fully paid, subject to the modes of compensation under R.A. No. 6657.
SAC Branch 23 reasoned that LBP used P35.00 per cavan as GSP in 1972 under E.O. No. 228, but that by 1992 the true and actual GSP had already become P300.00 per cavan, and therefore respondent had been short-paid and was denied actual money equivalence.
Respondent filed a Motion for Reconsideration on February 16, 2000.

Respondent argued that the GSP per cavan of palay should be computed at P400.00, because preliminary compensation had been paid in 1998, not in 1992.
Respondent insisted that in addition to the 12% legal interest ordered, compounded annual interest of 6% should be awarded pursuant to PARC Resolution No. 94-24-1 and DAR AO No. 13.
Respondent requested return of the unacquired area.

On February 10, 2000, the presiding judge of SAC Branch 23 inhibited himself, and the case was re-raffled to RTC Cabanatuan City, Branch 29 as SAC Branch 29.
On January 28, 2004, SAC Branch 29 issued a resolution reconsidering and modifying the award.

It ordered LBP to pay P1,039,017.88 representing land valuation with legal interest of 6% per annum, beginning 1998 until fully paid, subject to modes of compensation under R.A. No. 6657.
It ordered LBP to return the unacquired area covered by TCT No. NT-60359, after segregating the area taken by the DAR.

In denying the claim for incremental compounded interest of 6%, SAC Branch 29 explained that the purpose of such compounded interest was to compensate landowners for unearned interest had they been paid in 1972, when GSP was P35.00.
SAC Branch 29 held that because a higher GSP had already been used in the computation, there was no j...(Subscriber-Only)

Whether the Court of Appeals could disregard the valuation formula prescribed under P.D. No. 27 and E.O. No. 228 in fixing just compensation for land acquired under P.D. No. 27.
Whether the applicable valuation law should be the formula under P.D. No. 27 and E.O. No. 228 or the factors under R.A. No. 6657, considering that the agrarian reform process and the final settlement of just compensation were allegedly not yet completed.

Whether the Court of Appeals erred in affirming the grant of 6% interest to respondent. ...(Subscriber-Only)