Department of Agrarian Reform vs. Spouses Sta. Romana

When the agrarian reform process remains incomplete because just compensation has not been paid, the valuation of lands acquired under Presidential Decree No. 27 must be determined under Republic Act No. 6657, with Presidential Decree No. 27 and Executive Order No. 228 having only suppletory effect. The determination constitutes a judicial function requiring consideration of all factors enumerated in Section 17 of Republic Act No. 6657, with the valuation reckoned from the time of taking (when title is transferred to the Republic), and courts are not strictly bound by administrative valuation formulas promulgated by the Department of Agrarian Reform.

Spouses Diosdado Sta. Romana and Resurreccion O. Ramos, represented by Aurora Sta. Romana, together with Purificacion C. Daez (represented by Efren D. Villaluz and Rosauro D. Villaluz) and spouses Leandro C. Sevilla and Milagros C. Daez, owned a 27.5307-hectare agricultural property in San Jose City, Nueva Ecija, covered by Transfer Certificate of Title No. NT-66211. The Department of Agrarian Reform compulsorily acquired 21.2192 hectares thereof pursuant to the Operation Land Transfer Program under Presidential Decree No. 27, issuing emancipation patents to farmer-beneficiaries on November 29, 1995.

• Nature of the Property: Respondents owned a 27.5307-hectare agricultural land situated in San Jose City, Nueva Ecija, covered by Transfer Certificate of Title No. NT-66211.
• Compulsory Acquisition: The Department of Agrarian Reform compulsorily acquired 21.2192 hectares thereof pursuant to the Operation Land Transfer Program under Presidential Decree No. 27, as amended. On November 29, 1995, the Department of Agrarian Reform generated emancipation patents in favor of the farmer-beneficiaries.
• Initial Valuation: In 1996, the Land Bank of the Philippines fixed the land value at ₱361,181.87 (₱4,719.77 per hectare) using the formula under Executive Order No. 228 and Department of Agrarian Reform Administrative Order No. 13, series of 1994: LV = (2.5 x AGP x ₱35.00) x (1.06)n, where the government support price for palay was pegged at ₱35.00 based on the 1972 price at the time of Presidential Decree No. 27's effectivity.
• Challenge to Valuation: Dissatisfied, respondents filed a Petition for Approval and Appraisal of Just Compensation before the Regional Trial Court, alleging that: (a) the valuation was grossly inadequate considering the subject land's proximity to subdivision lots and commercial establishments; and (b) the fair market value should be at least ₱300,000.00 per hectare, citing evidence that some beneficiaries were selling lands to subdivision developers at ₱1,000,000.00 per hectare.
• Commissioners' Report: The Regional Trial Court appointed two commissioners who submitted a report on August 27, 2004, recommending ₱300,000.00 per hectare as reasonable compensation.
• Regional Trial Court Valuation: On October 18, 2005, the Regional Trial Court rejected the Land Bank valuation and fixed just compensation at ₱2,576,829.94 (₱121,438.60 per hectare), applying the formula LV = (CS x 0.9) + (MV x 0.1) derived from Department of Agrarian Reform Administrative Order No. 6, series of 1992, as amended by Administrative Order No. 11, series of 1994, based on comparable sales of a nearby landholding (₱129,114.00 per hectare) and the market value per respondents' tax declaration (₱52,360.00).
• Appellate Proceedings: The Department of Agrarian Reform and the Land Bank of the Philippines appealed to the Court of Appeals, which affirmed the Regional Trial Court valuation on March 27, 2008, holding that the expropriation was deemed to occur at the time of payment, not in 1972, making Republic Act No. 6657 applicable.

• Applicability of Executive Order No. 228: The Department of Agrarian Reform maintained that the proper procedure for valuation was followed under Presidential Decree No. 27 and Executive Order No. 228, and that the amount of ₱361,181.87 represented the legally mandated compensation.
• Alternative Relief: The Department of Agrarian Reform prayed in the alternative for a remand of the case to the Regional Trial Court for further proceedings to determine the land value in accordance with existing law and applicable administrative issuances.

• Inadequacy of Valuation: Respondents argued that the Land Bank valuation of ₱361,181.87 was grossly inadequate considering the subject land's proximity to subdivision lots and commercial establishments.
• Fair Market Value Standard: Respondents maintained that the fair market value should be fixed at least ₱300,000.00 per hectare, citing evidence that some beneficiaries were selling lands to subdivision developers at ₱1,000,000.00 per hectare.

• Applicable Law for Valuation: Whether the subject land was properly valued in accordance with the factors set forth in Section 17 of Republic Act No. 6657, as amended, or whether Presidential Decree No. 27 and Executive Order No. 228 governed the determination of just compensation.
• Completeness of Factor Consideration: Whether the Regional Trial Court properly considered all factors required by Section 17 of Republic Act No. 6657 in fixing the just compensation.

• Suppletory Application of Special Laws: When the agrarian reform process remains incomplete because just compensation has not been paid, the valuation must be determined and concluded under Republic Act No. 6657, with Presidential Decree No. 27 and Executive Order No. 228 having mere suppletory effect applicable only when gaps exist in Republic Act No. 6657.
• Time of Taking: Just compensation must be valued at the time of taking, defined as the time when the landowner was deprived of the use and benefit of the property, such as when title is transferred in the name of the Republic of the Philippines (here, 1995 when emancipation patents were generated).
• Mandatory Consideration of Statutory Factors: The Regional Trial Court erred in upholding a valuation that considered only the acquisition price of a nearby landholding and the market value per tax declaration, without showing that the other factors under Section 17 of Republic Act No. 6657 were taken into account or found inapplicable. The Court of Appeals consequently erred in affirming this incomplete valuation.
• Non-Retroactivity of Amendatory Law: Section 17 of Republic Act No. 6657, as amended prior to Republic Act No. 9700, should control the valuation because the petition was filed on July 21, 2008, before Republic Act No. 9700 took effect on July 1, 2009. Department of Agrarian Reform Administrative Order No. 2, series of 2009, expressly excepted claim folders received by the Land Bank prior to July 1, 2009, from the amended Section 17.
• Judicial Discretion Over Administrative Formulas: Regional Trial Courts acting as Special Agrarian Courts are not strictly bound by the formulas created by the Department of Agrarian Reform; the determination of just compensation is a judicial function that cannot be arbitrarily restricted by administrative formulas.
• Legal Interest: Legal interest at 12% per annum from the time of taking until June 30, 2013, and 6% per annum from July 1, 2013, until full payment, may be imposed on the just compensation award as warranted by the circumstances, following the amendment introduced by Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, series of 2013.

• Incomplete Agrarian Reform Process — In cases where lands were acquired under Presidential Decree No. 27 but just compensation remains unpaid, Republic Act No. 6657 applies suppletorily to complete the process, with the earlier decree and executive order filling only gaps in the comprehensive agrarian reform law.
• Time of Taking in Eminent Domain — The fair market value of expropriated property is determined by its character and price at the time of taking, which occurs when the landowner is deprived of the use and benefit of the property, such as when title is transferred to the Republic.
• Mandatory Factors for Just Compensation — Section 17 of Republic Act No. 6657 requires consideration of: (a) the acquisition cost of the land; (b) the current value of like properties; (c) the nature and actual use of the property and the income therefrom; (d) the owner's sworn valuation; (e) the tax declarations; (f) the assessment made by government assessors; (g) the social and economic benefits contributed by the farmers and the government to the property; and (h) the non-payment of taxes or loans secured from any government financing institution on the said land. All factors must be considered unless shown to be inapplicable.
• Judicial Function in Valuation — The determination of just compensation is essentially a judicial function vested in regional trial courts acting as Special Agrarian Courts. While courts should be mindful of Department of Agrarian Reform formulas, they are not strictly bound to adhere thereto if the situations before them do not warrant it, and they may proceed to make their own computation based on the extended list of factors in Section 17 of Republic Act No. 6657.
• Interest on Forbearance — Legal interest constitutes effective forbearance on the part of the State when there is delay in payment of just compensation in expropriation cases. The rate is 12% per annum from the time of taking until June 30, 2013, and 6% per annum thereafter until full payment, pursuant to Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, series of 2013.

• "When the agrarian reform process is still incomplete, as in this case where the just compensation for the subject land acquired under PD 27 has yet to be paid, just compensation should be determined and the process concluded under RA 6657, with PD 27 and EO 228 having mere suppletory effects."
• "Just compensation must be valued at the time of taking, or the time when the landowner was deprived of the use and benefit of his property, such as when title is transferred in the name of the Republic of the Philippines."
• "The determination of just compensation is a judicial function; hence, courts cannot be unduly restricted in their determination thereof. To do so would deprive the courts of their judicial prerogatives and reduce them to the bureaucratic function of inputting data and arriving at the valuation."

• Land Bank of the Philippines v. Santiago, Jr., G.R. No. 182209, October 3, 2012 — Controlling precedent establishing that Republic Act No. 6657 applies suppletorily to incomplete agrarian reform processes under Presidential Decree No. 27.
• Land Bank of the Philippines v. Heirs of Maximo Puyat, G.R. No. 175055, June 27, 2012 — Controlling precedent on the suppletory effect of Presidential Decree No. 27 and Executive Order No. 228, and the non-binding nature of Department of Agrarian Reform administrative formulas on courts.
• Land Bank of the Philippines v. Livioco, G.R. No. 170685, September 22, 2010 — Controlling precedent on valuation at the time of taking and the imposition of legal interest for delay in payment.
• Land Bank of the Philippines v. Spouses Banal, 478 Phil. 701 (2004) — Cited by the Regional Trial Court for the translation of Section 17 factors into the basic formula in Department of Agrarian Reform Administrative Order No. 6, series of 1992.
• Apo Fruits Corporation v. Court of Appeals — Cited for the principle that courts are not strictly bound by Department of Agrarian Reform valuation formulas.

• Section 17, Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988), as amended — Enumerates the factors to be considered in determining just compensation for lands covered by the agrarian reform program.
• Presidential Decree No. 27 (Tenants Emancipation Decree) — Decree emancipating tenants from the bondage of the soil and transferring ownership to them; provided the original valuation formula based on 1972 government support prices.
• Executive Order No. 228 — Declared full land ownership to qualified farmer beneficiaries and determined the value of remaining unvalued rice and corn lands under Presidential Decree No. 27.
• Republic Act No. 9700 (Comprehensive Agrarian Reform Program Extension with Reforms) — Amended Section 17 of Republic Act No. 6657; Section 5 provides that previously acquired lands wherein valuation is subject to challenge shall be completed pursuant to Section 17 of Republic Act No. 6657, as amended.
• Department of Agrarian Reform Administrative Order No. 6, Series of 1992, as amended by Administrative Order No. 11, Series of 1994 — Provided the basic formula (LV = [CNI + 0.6] + [CS x 0.3] + [MV x 0.1]) and alternative formulas for valuation of lands voluntarily offered or compulsorily acquired.
• Department of Agrarian Reform Administrative Order No. 13, Series of 1994 — Provided the formula for lands covered by Presidential Decree No. 27 and Executive Order No. 228, including the 6% yearly interest compounded annually.
• Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, Series of 2013 — Reduced the legal rate of interest from 12% to 6% per annum in the absence of stipulation, effective July 1, 2013.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Diosdado M. Peralta, and Jose Portugal Perez.