Title
Land Bank of the Philippines vs. Spouses Chu
Case
G.R. No. 192345
Decision Date
Mar 29, 2017
Land valuation dispute under agrarian reform laws; CA erred in disregarding RA 6657 guidelines, remanded to RTC for proper computation of just compensation.
just compensation
agricultural land
agrarian reform program

Case Summary (G.R. No. 192345)

Factual Background

The Chu spouses owned two parcels of agricultural land acquired under different agrarian reform regimes. The first parcel, covered by TCT Nos. T-27060 and 27062, had an area of fourteen point nine four nine three hectares (14.9493 has.) and was acquired under PD 27 (the “PD 27-acquired land”). LBP initially valued this land at P177,657.98. The second parcel, covered by TCT No. T-27060 (pt.), had an area of seven point seven one one eight hectares (7.7118 has.) and was acquired under RA 6657 (the “RA 6657-acquired property”). LBP valued it at P263,928.57. The owners rejected LBP’s valuations, prompting summary administrative proceedings before the Provincial Agrarian Reform Adjudication Board (PARAD) to determine just compensation.

Provincial Agrarian Reform Adjudicator Proceedings

The administrative proceedings were docketed as Land Valuation Case No. LV-30-’03 for the RA 6657-acquired property and Land Valuation Case No. LV-48-’03 for the PD 27-acquired land. On April 11, 2003, the PARAD issued two separate decisions. For the RA 6657-acquired property, PARAD recomputed valuation at P1,542,360.00 or P200,000.00 per hectare, using comparable sales transaction evidence of similar nearby lots and Municipal Resolution No. 79, series of 2002, which declared Hacienda Chu as an industrial area. PARAD also considered the property’s good production, topography, and accessibility. For the PD 27-acquired land, PARAD valued the property at P983,663.94 using the formula Land Value = AGP x ASP x 2.5, with its application based on an Average Gross Production of 75.2 and an Actual Support Price of P350.00 multiplied by 2.5. LBP’s motion for reconsideration was denied by the DARAB in a June 19, 2003 order.

RTC Proceedings as Special Agrarian Court

LBP then filed a petition for determination of just compensation before the Regional Trial Court of Sorsogon City, Branch 52, docketed as Civil Case No. 2003-7205. In a September 21, 2005 Decision, the RTC fixed just compensation at P2,313,478.00 for the RA 6657-acquired property and P1,155,173.00 for the PD 27-acquired land. The RTC, while taking cognizance of the valuation factors considered by LBP and PARAD, emphasized “potentials” of the properties, anchored on municipal expansion plans and anticipated industrial and economic development. It relied on testimony and municipal assessment evidence that the locality was being transformed into an “Agri-Economic Zone,” projecting livelihood opportunities and economic multiplier effects. The RTC further treated the potential of the lands as supporting an additional P100,000.00 per hectare, which it added to PARAD’s valuations. It then computed the total just compensation by adding PARAD’s base fair market values plus the potential-based increments, resulting in the amounts stated in its dispositive portion. LBP’s motion for reconsideration was denied by the RTC in an Order dated February 13, 2006.

CA Ruling and Modification

The CA modified the RTC decision. It held that the PARAD formula (LV = AGP x ASP x 2.5) for the PD 27-acquired land was correct, but it faulted the amount used for ASP, stating that, pursuant to EO 228 and Gabatin v. Land Bank of the Philippines, the mandated support price was P35, not P350. The CA maintained that the formula remained applicable to PD 27-acquired lands notwithstanding the passage of RA 6657, citing EO 229. The CA also imposed interest at 12% per annum for delay, upholding LBP’s base valuation of P177,657.98 for the PD 27-acquired land, but applying legal interest at 12% per annum.

As to the RA 6657-acquired property, the CA stated that Section 17 of RA 6657 and DAR A.O. No. 05-98 controlled. It described the formula as LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), with an alternative formula LV = (CNI x 0.9) + (MV x 0.1) when the CS factor was not present. The CA concluded that, although LBP had used the proper formula, it failed to account for rising land values in Pilar, Sorsogon, attributable to local economic developments and industrial land assessments, despite evidence of comparable sales going up to at least P200,000.00 per hectare. Accordingly, the CA affirmed PARAD’s valuation estimate of P200,000.00 per hectare for the RA 6657-acquired property.

Issues Raised Before the Supreme Court

LBP raised three principal legal errors. First, it argued that as to the RA 6657-acquired land, the CA disregarded the valuation factors under Section 17 of RA 6657 and pertinent DAR administrative orders by fixing the value at P1,542,360.00. Second, it asserted that as to the PD 27-acquired land, the CA erred in refusing to remand for recomputation under Section 17 of RA 6657, as amended. Third, it contended that the CA’s award of 12% interest per annum on the PD 27-acquired land lacked basis, particularly in light of RA 9700 and related DAR rules.

The Parties’ Contentions

LBP maintained that the CA improperly relied on extraneous considerations, such as the supposed rising value of lands and the “potentials” of the subject properties, instead of adhering strictly to the mandatory valuation structure under RA 6657 and DAR A.O. No. 05-98. LBP further argued that RA 9700 required completion and final resolution of contested valuations under Section 17 of RA 6657, as amended, and that, on the PD 27-acquired land, the proper remedy was remand for recomputation under the amended statutory framework. Lastly, LBP argued that interest should not have been imposed, or at least should be computed under the controlling statutory and regulatory regime arising from RA 9700 and the implementing DAR issuances.

Respondents did not file a comment and were deemed to have waived it.

The Court’s Core Rulings on the RA 6657-Acquired Property

The Court held that consideration of Section 17 factors and the DAR formula under DAR A.O. No. 05-98 is mandatory in determining just compensation for agrarian reform cases, subject only to deviation where warranted by the specific factual circumstances and supported by a reasoned explanation grounded on evidence, consistent with Land Bank of the Philippines v. Gonzalez and Alfonso v. Land Bank of the Philippines. The Court emphasized that DAR formulas, until declared invalid, partake of the nature of statutes and courts must consider them in determining just compensation.

Applying these principles, the Court refused to sustain LBP’s valuation of P263,928.57 for the RA 6657-acquired property for failure to substantiate it. The Court held that LBP did not adduce sufficient evidence to prove the truthfulness and correctness of the Market Value (MV) component of its computation. Although LBP presented materials to support the Capitalized Net Income (CNI) factor, the Court found that the MV component lacked an evidentiary basis. It noted that LBP’s Claims Valuation and Processing Form reflected the computation but did not show how the underlying figures were arrived at, and LBP did not present testimonial evidence to corroborate the asserted figures. The Court reiterated that even if the form’s computation might be mathematically correct, it remained incapable of establishing the truthfulness of the data used.

More importantly, the Court found that the PARAD and RTC valuations were reached in disregard of the prescribed DAR formula structure because they effectively relied on only the Comparable Sales (CS) factor while excluding other factors such as CNI and MV, and they also did not determine CS pursuant to DAR A.O. No. 05-98 guidelines. The Court found it decisive that respondents’ evidence did not satisfy the comparable sales rules. It noted that respondents presented only two comparable sale transactions, which was insufficient under DAR A.O. No. 05-98 requiring at least three comparable sales transactions or, only if appropriate, different circumstances where AC and/or MVM is present. The Court further rejected Municipal Resolution No. 79, series of 2002 as a “comparable sales transaction” because it did not involve an actual sale transaction; it only manifested the local government’s intention to develop and classify the area.

The Court also held that the lower tribunals improperly allowed “potentials” and predicted industrial/economic development to control valuation in a manner inconsistent with agrarian jurisprudence. It relied on Land Bank of the Philippines v. Livioco, which dismissed “potential use” as a controlling criterion and held that the fair market value is determined by the property’s character and its price at the time of taking, while potential adaptability is only a factor in proper cases and never the ultimate basis.

Given the evidentiary inadequacy, the Court held that it could not itself determine a correct computation of just compensation because it was not a trier of facts and could not receive new evidence. It thus ordered a remand to the RTC for reception of evidence and redetermination of just compensation strictly according to Section 17 of RA 6657, as amended, and the controlling DAR formulas, as guided by the Court’s pronouncements in Alfonso.

The Court’s Rulings on the PD 27-Acquired Land

As to the PD 27-acquired land, the Court held the CA erred in applying EO 228 and treating the EO 228 formula framework as still operative notwithstanding the passage of RA 6657. It cited controlling rulings holding that when the agrarian reform process remains incomplete because just compensation has yet to be settled, just compensation must be determined under Section 17 of RA 6657, and the process should be concluded under RA 6657’s framework, supported by RA 6657’s retroactive operation and equitable considerations. This approach recognized that PD 27 and EO 228 have suppletory effect to RA 6657 provisions when acquisition is incomplete.

The Court further addressed the effect of RA 9700. It held that, notwithstanding RA 9700’s passage and amendments, the case fell within the qualified ambit of RA 9700’s “previously acquired lands wherein valuation is subjec

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