Heirs of Pablo Feliciano, Jr. vs. Land Bank of the Philippines

Just compensation for lands acquired under PD 27 whose claim folders were received by LBP prior to July 1, 2009 must be determined under Section 17 of RA 6657 prior to its amendment by RA 9700, valued at the time of taking when emancipation patents were issued, with legal interest at 12% per annum from the time of taking until June 30, 2013 and 6% per annum thereafter until fully paid.

The Feliciano heirs were co-owners of a 300-hectare agricultural land situated at F. Simeon, Ragay, Camarines Sur, covered by TCT No. RT 3080 (4120). A 135.2583-hectare portion was classified as un-irrigated riceland and placed under the coverage of Presidential Decree No. 27 in 1972. Certificates of Land Transfer were distributed to 84 tenant-beneficiaries in 1973, and emancipation patents were issued in 1989. The heirs subsequently assigned their rights over the just compensation claims to Victoria Alda Reyes Espiritu. The dispute centers on the proper legal framework for valuing just compensation where the acquisition process under PD 27 remained incomplete and the claim folder had been received by LBP before the effectivity of RA 9700 and its implementing rules.

The Feliciano heirs — Lourdes Feliciano Tudla, Gloria Feliciano Caudal, Gabriela Feliciano Bautista, Angela Feliciano Lucas, Donna Celeste Feliciano-Gatmaitan, Cynthia Celeste Feliciano, and Hector Reuben Feliciano — were co-owners of a 300-hectare parcel of agricultural land situated at F. Simeon, Ragay, Camarines Sur, covered by TCT No. RT 3080 (4120). In 1972, a 135.2583-hectare portion of the land was classified as un-irrigated riceland and placed under the coverage of PD 27. Certificates of Land Transfer were distributed to 84 tenant-beneficiaries in 1973, who were subsequently issued emancipation patents in 1989.

The claim folder covering the subject land was received by LBP from the DAR on December 2, 1997. DAR valued the land at ₱1,301,498.09, inclusive of interests, but the Feliciano heirs rejected the valuation, prompting LBP to deposit the amount in their name on January 26, 1998. The said amount was released to them on March 24, 2000. After summary administrative proceedings, the PARAD of Camarines Sur, Branch I, rendered a Decision on September 28, 2001, fixing the value at ₱4,641,080.465.

On November 22, 2001, LBP filed a petition for the determination of just compensation before the RTC of Naga City, Branch 23, docketed as Civil Case No. 2001-0359. The case was initially dismissed but eventually reinstated. In the interim, the Feliciano heirs assigned their rights over the just compensation claims to Espiritu. In an Order dated May 4, 2011, the RTC directed LBP to revalue the subject land in accordance with DAR AO 1, Series of 2010. LBP revalued the land at ₱7,725,904.05, which Espiritu accepted, though she insisted on entitlement to 12% interest p.a. on the revalued amount on the ground of unreasonable delay in payment.

In a Decision dated September 19, 2011, the RTC fixed just compensation at ₱7,725,904.05 and directed LBP to pay the amount less amounts already paid, plus 12% interest p.a. on the unpaid balance from January 1, 2010 until full payment, observing that the subject land fell under DAR AOs providing for 6% annual interest for delay but imposing 12% from January 1, 2010 since DAR AO 6-2008 was effective only until December 31, 2009. Both parties moved for reconsideration, denied in an Order dated November 24, 2011, which modified the reckoning of the 12% interest from the finality of the Decision until its satisfaction. On appeal, the CA initially fixed just compensation at ₱7,725,904.05 plus 12% interest p.a. from July 1, 2009 up to finality, then amended its ruling to limit LBP's liability to 12% interest accruing from July 1, 2009 to December 13, 2011 — when LBP had paid the principal — or ₱1,892,471.01, with 6% interest p.a. from finality until full payment. Neither the RTC nor the CA considered the date when the claim folder was received by LBP nor explained any deviation from the prescribed DAR formula in arriving at the valuation.

• Applicable Valuation Framework: Whether DAR AO 1, Series of 2010 was properly applied in determining just compensation for the subject land, given that the claim folder was received by LBP on December 2, 1997.
• Time of Taking: Whether just compensation must be valued at the time of taking, defined as when emancipation patents were issued in 1989.
• Legal Interest: Whether legal interest should be awarded on the unpaid just compensation, and if so, at what rate and for what period.

• Applicable Valuation Framework: No. DAR AO 1, Series of 2010 was improperly applied because the claim folder was received by LBP prior to July 1, 2009, and thus just compensation must be determined under Section 17 of RA 6657 prior to its amendment by RA 9700, pursuant to the cut-off rule.

• Time of Taking: Yes. Just compensation must be valued at the time of taking, which in this case was 1989 when emancipation patents were issued in the names of the farmer-beneficiaries, depriving the landowner of the use and benefit of the property.

• Legal Interest: Yes. Legal interest at 12% p.a. is proper from the time of taking in 1989 until June 30, 2013, and at 6% p.a. from July 1, 2013 until fully paid, in line with BSP-MB Circular No. 799, Series of 2013.

• Applicable Valuation Framework: The Court applied the "cut-off rule" articulated in LBP vs. Kho, which held that DAR AO 1, Series of 2010 — issued in implementation of RA 9700 — applies only to claim folders received by LBP on or subsequent to July 1, 2009. DAR AO 2, Series of 2009 expressly provided that claim folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of RA 6657 prior to its amendment by RA 9700. Since the claim folder covering the subject land was received by LBP on December 2, 1997, the RTC should have computed just compensation using pertinent DAR regulations applying Section 17 of RA 6657 prior to its amendment by RA 9700, rather than adopting DAR AO 1, Series of 2010. While a Special Agrarian Court is not strictly bound by the DAR formula because the determination of just compensation is essentially a judicial function, it must explain and justify in clear terms any deviation from the prescribed factors and applicable formula. Neither the RTC nor the CA considered the date of receipt of the claim folder or explained their reasons for deviating from the DAR formula, rendering the valuation deficient and warranting remand.

• Time of Taking: The Court reaffirmed that the fair market value of expropriated property is determined by its character and price at the time of taking — 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 beneficiaries. In this case, emancipation patents were issued in 1989, marking the time of taking. Evidence to be presented for valuation must therefore be based on values prevalent at that time for like agricultural lands. The factors enumerated under Section 17 of RA 6657 — including acquisition cost, current value of like properties, nature and actual use, income, owner's sworn valuation, tax declarations, government assessments, social and economic benefits, and non-payment of taxes or loans — must be equally considered.

• Legal Interest: The Court recognized that legal interest may be awarded in expropriation cases where there is delay in payment, since just compensation due to landowners is deemed an effective forbearance on the part of the State. Legal interest on the unpaid balance shall be pegged at 12% p.a. from the time of taking in 1989 when emancipation patents were issued, until June 30, 2013. Thereafter, beginning July 1, 2013 until fully paid, the just compensation shall earn interest at the new legal rate of 6% p.a., in line with the amendment introduced by BSP-MB Circular No. 799, Series of 2013, as articulated in Nacar vs. Gallery Frames.

• Cut-off Rule in the Application of RA 9700 — Claim folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of RA 6657 prior to its amendment by RA 9700. DAR AO 1, Series of 2010, issued in implementation of RA 9700, applies only to claim folders received on or subsequent to July 1, 2009. The Court applied this rule because the claim folder was received on December 2, 1997, rendering the RTC's and CA's use of DAR AO 1, Series of 2010 erroneous.

• Time of Taking in Agrarian Reform Cases — Just compensation must be valued at the time of taking, defined as when the owner was deprived of the use and benefit of the property, such as when emancipation patents are issued in the names of farmer-beneficiaries. In this case, the time of taking was 1989, and evidence for valuation must be based on values prevalent at that time.

• SAC Discretion to Deviate from DAR Formulas — While the Special Agrarian Court is not strictly bound by the DAR formula in determining just compensation, it must explain and justify in clear terms the reason for any deviation from the prescribed factors and applicable formula. Courts possess the power to make a final determination of just compensation, but departure from DAR formulas must be supported by a reasoned explanation grounded on the evidence on record.

• Legal Interest in Expropriation Cases — Legal interest is proper where there is delay in payment of just compensation, as the amount due is deemed an effective forbearance by the State. The rate is 12% p.a. from the time of taking until June 30, 2013, and 6% p.a. from July 1, 2013 until fully paid, pursuant to BSP-MB Circular No. 799, Series of 2013.

• "Following the above dictum, since the claim folder covering the subject land was received by the LBP on December 2, 1997, or prior to July 1, 2009, the RTC should have computed just compensation using pertinent DAR regulations applying Section 17 of RA 6657 prior to its amendment by RA 9700 instead of adopting the new DAR issuance." — This passage states the ratio decidendi: the cut-off rule determines which legal framework governs the valuation of just compensation based on when the claim folder was received.

• "While the RTC, acting as a Special Agrarian Court (SAC), is not strictly bound by the different formula created by the DAR since the valuation of property or the determination of just compensation is essentially a judicial function which is vested with the courts, and not with administrative agencies, it must explain and justify in clear terms the reason for any deviation from the prescribed factors and the applicable formula." — This passage articulates the doctrine governing the SAC's discretion to deviate from DAR formulas, requiring a reasoned explanation grounded on evidence.

• "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." — This is the Court's reiterative guidance for the bench, bar, and public on the proper relationship between DAR formulas and judicial discretion in determining just compensation.

• LBP vs. Kho, G.R. No. 214901, June 15, 2016 — Controlling precedent on the "cut-off rule" for application of RA 9700. The Court followed its holding that DAR AO 1, Series of 2010 applies only to claim folders received on or after July 1, 2009, and that claim folders received prior to that date must be valued under Section 17 of RA 6657 prior to its amendment by RA 9700.

• DAR vs. Sps. Sta. Romana, 738 Phil. 590 (2014) — Cited for the proposition that when the acquisition process under PD 27 is still incomplete, just compensation should be determined and concluded under RA 6657, and that the time of taking is when the landowner was deprived of the use and benefit of the property.

• DAR vs. Beriña, 738 Phil. 605 (2014) — Cited alongside Sps. Sta. Romana for the same propositions regarding the applicable legal framework and the time-of-taking rule.

• Mercado vs. LBP, G.R. No. 196707, June 17, 2015 — Cited for the principle that the SAC is not strictly bound by DAR formulas but must explain any deviation, and for the necessity of remand to ensure compliance with the law.

• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited for the rule on the applicable legal interest rates: 12% p.a. until June 30, 2013, and 6% p.a. thereafter pursuant to BSP-MB Circular No. 799, Series of 2013.

• Apo Fruits Corp. vs. LBP, 647 Phil. 251 (2010) — Cited in connection with the RTC's imposition of 12% interest p.a. on unpaid just compensation.

• LBP vs. Eusebio, Jr., 738 Phil. 7 (2014) — Cited via LBP vs. Kho for the requirement that the SAC must explain and justify any deviation from the prescribed DAR factors and formula.

• Alfonso vs. LBP, G.R. Nos. 181912 and 183347, November 29, 2016 — Cited for the principle that courts of law possess the power to make a final determination of just compensation.

• Presidential Decree No. 27 — Decreed the emancipation of tenants from the bondage of the soil, transferring ownership of the land they till. The subject land was placed under PD 27 coverage in 1972, triggering the agrarian reform process whose just compensation remained unsettled.

• Section 17, Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988), as amended prior to RA 9700 — Enumerates the factors for determining just compensation: (a) acquisition cost, (b) current value of like properties, (c) nature and actual use and income, (d) owner's sworn valuation, (e) tax declarations, (f) assessment by government assessors, (g) social and economic benefits contributed by farmers and government, and (h) non-payment of taxes or loans. The Court held this provision, as translated into applicable DAR formulas existing prior to RA 9700, should govern valuation because the claim folder was received before July 1, 2009.

• Republic Act No. 9700 — Further amended certain provisions of RA 6657, including Section 17. Its implementing rules (DAR AO 2, Series of 2009) clarified that it does not apply to claim folders received by LBP prior to July 1, 2009.

• DAR AO 1, Series of 2010 — Rules and regulations on valuation and landowners compensation involving tenanted rice and corn lands under PD 27 and EO 228. The Court held it was erroneously applied since it applies only to claim folders received on or after July 1, 2009.

• DAR AO 2, Series of 2009 — Contains the transitory provision establishing the cut-off rule: claim folders received by LBP prior to July 1, 2009 shall be valued under Section 17 of RA 6657 prior to its amendment by RA 9700.

• DAR AO 13, Series of 1994; DAR AO 2, Series of 2004; DAR AO 6, Series of 2008 — Collectively provided for the payment of 6% annual interest for delay in payment of just compensation on lands covered by PD 27 and EO 228. The RTC observed these applied to the subject land but imposed 12% interest from January 1, 2010 because DAR AO 6-2008 was effective only until December 31, 2009.

• BSP-MB Circular No. 799, Series of 2013 — Amended the legal rate of interest from 12% to 6% p.a. in the absence of stipulation. The Court directed that interest on unpaid just compensation shall be 12% p.a. from the time of taking until June 30, 2013, and 6% p.a. from July 1, 2013 until fully paid.

Sereno, C.J. (Chairperson); Leonardo-De Castro, J.; Del Castillo, J.; Caguioa, J.