Title
Land Bank of the Philippines vs. Santiago, Jr.
Case
G.R. No. 182209
Decision Date
Oct 3, 2012
Dispute over just compensation for land acquired under agrarian reform; Supreme Court ruled RA No. 6657 applies, mandating 12% interest for delayed payment.
government support price
interest rate
just compensation
A

Case Summary (G.R. No. L-65800)

Factual Background

Under OLT, the DAR acquired 17.4613 hectares of the subject property. The valuation of rice and corn lands was to be based on the average gross production and a prescribed government support price, as reflected in P.D. No. 27 and E.O. No. 228. The parties’ valuation produced a land value pegged at 3,915 cavans of palay. The computation was derived from the average gross production (AGP) determined by the Barangay Committee on Land Production (BCLP) for three normal crop years immediately preceding the promulgation of P.D. No. 27, multiplied by the factor 2.5, and then multiplied by the relevant government support price (GSP).

Since Santiago died on November 1, 1987, LBP, in 1992, reserved in trust for the heirs the amount of P135,482.12 as preliminary just compensation computed using P35.00 as the GSP per cavan of palay for the year 1972. The amount was released to Santiago’s heirs on April 28, 1998, following a prior decision in Land Bank of the Philippines v. Court of Appeals. LBP also paid an incremental interest of P353,122.62 in May and June 1998, representing 6% annual interest compounded annually for 22 years, pursuant to PARC Resolution No. 94-24-1 and DAR Administrative Order (AO) No. 13.

Despite receiving these payments, respondent later sought judicial approval and appraisal of the remaining just compensation. On November 20, 1998, respondent, acting as co-owner and administrator, filed a petition in the RTC of Cabanatuan City, Branch 23, acting as SAC Branch 23, for the determination and payment of just compensation. Respondent expressly agreed with the land valuation in terms of volume—3,915 cavans of palay—but challenged the monetary conversion and the interest methodology. He insisted that the applicable GSP per cavan of palay should be P400.00, reflecting the GSP at the time of payment in 1998 rather than the older valuation pegged to P35.00. He also demanded that 6% compounded annual interest be imposed from 1972 to 1998, or for 26 years. He further sought the return of any unacquired portion of the property.

Trial Court Proceedings: SAC Branch 23

On January 21, 2000, SAC Branch 23 rendered its Decision and ordered LBP to pay P1,039,017.88, representing the balance of land valuation, “with legal interest at 12% from the year 1998 until the same is fully paid,” subject to the modes of compensation under R.A. No. 6657.

The SAC’s rationale was that LBP used P35.00 per cavan as the GSP for valuation, based on E.O. No. 228, even though the “true and actual money equivalence” in 1992 allegedly reflected a higher GSP of P300.00 per cavan of palay. The SAC concluded that Santiago was short-paid, because the reserved sum did not represent just compensation corresponding to the current GSP equivalent of the agreed 3,915 cavans.

Respondent moved for reconsideration. He argued that the SAC should compute the GSP at P400.00 because the preliminary compensation was paid in 1998, not in 1992. He further sought the reinstatement of compounded annual interest in the amount of 6% on the principal amount, in addition to the legal interest, and sought return of the unacquired area.

Trial Court Proceedings: SAC Branch 29 and the Modified Ruling

Before the motion for reconsideration could be resolved, the presiding judge of SAC Branch 23 inhibited himself on February 10, 2000, and the case was re-raffled to SAC Branch 29. On January 28, 2004, SAC Branch 29 reconsidered and modified the ruling. It ordered LBP to pay the petitioner the amount of P1,039,017.88 with legal interest of 6% per annum beginning 1998 until fully paid. It also ordered the return to respondent of the unacquired portion of the property after segregating the area taken by the DAR.

SAC Branch 29 explained that it denied the incremental compounded interest of 6%. It reasoned that the purpose of compounded incremental interest was to compensate landowners for unearned interest, assuming they had been paid in 1972 when the GSP was P35.00. Since the SAC used a higher GSP in computing the land valuation of the subject property, it held that there was no justification to add compounded interest on top of the increased principal valuation. It also reduced the legal interest from 12% to 6%, stating that respondent’s claim was not a forbearance of money, and that the State had only acquired 17.4 hectares, thus justifying the return of the unacquired area.

Respondent later sought review in this Court in a separate petition, Heirs of Emiliano F. Santiago, represented by Emiliano R. Santiago, Jr. as administrator, against the Republic of the Philippines, represented by the DAR, and LBP; that petition was docketed as G.R. No. 162055 and was denied on March 31, 2004.

Court of Appeals Ruling

LBP, in turn, filed a petition for review before the Court of Appeals, challenging the just compensation fixed and the legal interest awarded by the SACs. In CA-G.R. SP No. 82467, the Court of Appeals, in its September 28, 2007 Decision, affirmed the SAC Branch 23 Decision as modified by SAC Branch 29. The Court of Appeals dismissed LBP’s petition and affirmed the lower court rulings. It later denied LBP’s motion for reconsideration in a March 14, 2008 Resolution.

The Court of Appeals held that the DAR formula in DAR AO No. 13 could no longer be applied because the Provincial Agrarian Reform Adjudicator (PARAD) had already been using a higher GSP. It concluded that once a higher GSP was used in computing respondent’s just compensation, respondent was no longer entitled to the incremental interest of 6%.

Issues Presented to the Supreme Court

LBP anchored its petition on two principal issues: first, whether the Court of Appeals could disregard the valuation formula prescribed in P.D. No. 27 and E.O. No. 228 in fixing just compensation for land acquired under P.D. No. 27; and second, whether the Court of Appeals erred in affirming the award of 6% legal interest to respondent.

The Parties’ Contentions on Computation of Just Compensation

On the computation issue, LBP maintained that P.D. No. 27 and E.O. No. 228 provided the exclusive formula for valuation of lands acquired under P.D. No. 27, emphasizing the governing time for GSP in light of judicial rulings. LBP cited Gabatin v. Land Bank of the Philippines, where the Court had held that the GSP should be pegged at the time of taking, considered in that case as October 21, 1972 (the effectivity date of P.D. No. 27).

The Court, however, treated Meneses v. Secretary of Agrarian Reform and the more recent line of rulings, particularly Land Bank of the Philippines v. Natividad, as controlling in the factual setting of this case. It observed that R.A. No. 6657 took effect on June 15, 1988, and that the determination of just compensation depended on whether the computation should follow the valuation formula under P.D. No. 27 and E.O. No. 228, or instead proceed under R.A. No. 6657. The Court reasoned that in Natividad, it had ruled that “the seizure of the landholding did not take place on the date of effectivity of P.D. No. 27 but would take effect on the payment of just compensation,” and thus, when the agrarian reform process was still incomplete because just compensation had not yet been finally settled, R.A. No. 6657 should govern, with P.D. No. 27 and E.O. No. 228 having only suppletory effect.

The Court further relied on Land Bank of the Philippines v. Heirs of Angel T. Domingo, where it applied the same principle when a landowner filed a petition for determination and payment of just compensation despite receipt of partial payment, because the final amount due had not yet been settled and the agrarian reform process remained incomplete. It then extended these doctrines through subsequent cases, including Land Bank of the Philippines v. Puyat, to clarify that once the process remains incomplete and is overtaken by R.A. No. 6657, the process should be completed under R.A. No. 6657, with P.D. No. 27 limited to gaps.

Supreme Court’s Legal Reasoning on the Applicable Valuation Law

Applying these doctrines, the Court noted that while LBP reserved preliminary compensation in 1992, the heirs did not actually receive the reserved amount until 1998, and the release was linked to the pendency of litigation over the final determination of land valuation. The Court emphasized that until the issue of just compensation had been finally resolved and the process completed, R.A. No. 6657 continued to apply. It stressed that Section 17 of R.A. No. 6657 provides the mandatory factors for determining just compensation, including acquisition cost, current value of like properties, nature, actual use and income, sworn valuation by the owner, tax declarations, assessment made by government assessors, social and economic benefits contributed by farmers and workers and by government, and non-payment of taxes or loans secured from government financing institutions.

The Court also addressed later legislative developments, referencing Republic Act No. 9700 (CARP Extension with reforms) and the implementing rule distinction in DAR AO No. 02-09. It clarified that although R.A. No. 9700 amended Section 17, the case still fell under the version of Section 17 of R.A. No. 6657, as amended, because the transitory provisions and the nature of valuation challenges required completion and final resolution under the former Section 17 as applicable.

Consequently, the Court concluded that the SACs and the Court of Appeals did not correctly apply the governing framework. It held that the lower courts had relied on changing GSP without taking the mandatory factors under Section 17 of R.A. No. 6657 as the primary basis, and that the courts’ approach effectively deviated from the settled rules for fixing just compensation for P.D. No. 27 expropriations in light of R.A. No. 6657.

The Supreme Court’s Ruling on Interest

On interest, LBP argued that DAR AO No. 13 should govern the award of incremental interest of 6%, compounded annually. Respondent, on t

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