Land Bank of the Philippines vs. Corazon M. Villegas

Just compensation in agrarian reform expropriation cases must be based on the value of the property at the time of taking, and courts must follow the DAR formula under DAO No. 5, which prescribes that the selling price component shall be the average of the latest available 12-months' selling prices prior to the date of receipt of the Claim Folder by Land Bank. While courts have discretion to relax the application of these formulas, any deviation must be clearly explained in the decision.

Respondent Corazon M. Villegas was the registered owner of an 11.7182-hectare lot in Hibaiyo, Guihulngan, Negros Occidental, covered by Original Certificate of Title No. FV-12575. The property was offered to the government through the Voluntary Offer to Sell (VOS) Scheme under the Comprehensive Agrarian Reform Program (CARP), with 10.6194 hectares subject to CARP coverage. Petitioner Land Bank of the Philippines acted as the financial intermediary of CARP and custodian of the Agrarian Reform Fund (ARF), tasked with computing the value of lands acquired under the program pursuant to the valuation guidelines under the Department of Agrarian Reform Administrative Orders (DAO).

Respondent Corazon M. Villegas was the registered owner of an 11.7182-hectare lot in Hibaiyo, Guihulngan, Negros Occidental under Original Certificate of Title No. FV-12575. On April 10, 2003, respondent offered 10.6194 hectares of the property to the government through the Voluntary Offer to Sell (VOS) Scheme under the Comprehensive Agrarian Reform Program (CARP). As part of the field investigation, a team comprised of personnel from the Department of Agrarian Reform (DAR) and petitioner Land Bank of the Philippines conducted an ocular inspection of the property on July 30, 2003.

Petitioner received respondent's Claim Folder on June 24, 2004. As financial intermediary of CARP and custodian of the Agrarian Reform Fund, petitioner computed the value of respondent's property at P580,900.08, which respondent rejected, although the amount was deposited to her bank account. The Provincial Agrarian Reform Adjudicator (PARAD) of Negros Oriental conducted summary administrative proceedings and affirmed petitioner's valuation. On appeal, the DARAB increased the valuation to P1,831,351.20. Dissatisfied, petitioner filed an action for determination of just compensation with the RTC-SAC, which ordered the constitution of the Board of Commissioners.

The Board of Commissioners applied the formula in DAO No. 5, s. 1998: Land Value = (Capitalized Net Income x 0.90) + (Market Value x 0.10), since the Comparable Sales factor was deemed inapplicable. It prepared two valuations: Option 1 at P1,833,614.30 and Option 2 at P2,938,448.16. Both options used the same Market Value of P458,084.00, based on the property's valuation under Tax Declaration 2003-07-11-01190, which reported the entire property as composed of 6.50 hectares of sugarland, 1.50 hectares of cocal, and 3.7182 hectares of cornland, including coconut and banana trees as improvements. The difference between the two options was the Selling Price used: Option 1 used the average SP for sugar, molasses, and corn for crop year 2003-2004, while Option 2 used the average SP from crop year 2003-2004 until 2010-2011. The Board ultimately recommended Option 2, citing the significant increase in sugar and molasses prices beginning crop year 2005-2006, which it claimed was supported by JMC No. 15, Series of 1999.

The RTC-SAC adopted the Board's recommendation of P2,938,448.16, opining that the valuation considered all relevant factors under Section 17 of RA 6657. It also awarded 12% legal interest per annum on the principal amount less the initial deposit of P580,900.08, reckoned from the time of taking until full payment. On appeal, the Court of Appeals affirmed.

Petitioner argued that the Board of Commissioners appraised the property without actual ocular inspection, improperly applied appraisal methodologies not sanctioned by the CARP Law, DAO No. 5, and relevant jurisprudence. Specifically, petitioner claimed: (a) the MV was incorrect because the tax declaration contradicted the Board's own finding on actual land use, there were no coconut or banana trees on the property, and the RCPI for 1999 rather than 2004 should have been used; (b) the AGP for July 2002-June 2003 should have been used instead of crop year 2003-2004 data; (c) the NIR should have been based on where the canes were produced rather than where they were milled; and (d) interest should not have been imposed because there was prompt deposit of the government valuation, and the 12% rate had been lowered to 6% under BSP Circular No. 799.

Respondent, substituted by Napoleon Villegas, Jr., defended the assailed dispositions, emphasizing that the determination of just compensation is a judicial function which the executive and legislature cannot interfere with, and that statutes and issuances fixing formulae should be treated as mere guidelines.

• Market Value Error: Petitioner argued that the MV utilized by the Board of Commissioners was incorrect because the tax declaration contradicted the Board's own finding that based on actual use, the 10.6914-hectare property subject to CARP was 8 hectares sugarland and 2.6914 hectares cornland; there were no coconut or banana trees planted on the property; and the RCPI for 1999, not 2004, should have been used to gross up the market value.

• Annual Gross Production Error: Petitioner argued that the AGP for July 2002-June 2003 should have been utilized instead of data for crop year 2003-2004, since the Field Investigation was conducted on July 30, 2003, and DAO No. 5 requires the latest available 12-months' gross production immediately preceding the date of field investigation.

• Net Income Rate Error: Petitioner argued that the Board of Commissioners erred in basing the NIR for sugar and molasses on data from Lopez Sugar Central, since the NIR should be based on where the canes are produced rather than the place they were milled.

• Interest Award: Petitioner underscored that the imposition of interest in expropriation cases is in the nature of damages for delayed payment, which makes the government's obligation one of forbearance; since there was prompt deposit of the government valuation, albeit rejected by respondent, delay cannot be imputed on the government, and interest should not have been imposed. Even assuming interest was in order, the 12% rate had already been lowered to 6% pursuant to BSP Circular No. 799.

• Judicial Function: Respondent emphasized that the determination of just compensation is a judicial function which the executive and legislature cannot interfere with, and that statutes and issuances fixing formulae should be treated as mere guidelines, not binding on courts.

• Fairness of Valuation: Respondent argued that the valuation fixed by the court of P2,938,448.16 is fair, unlike petitioner's grossly inadequate valuation of P580,900.08, and that it was erroneous for petitioner to speculate that the board did not consider the factors enumerated by law in computing just compensation.

• Applicable Formula: Whether the RTC-SAC and Court of Appeals correctly applied the formula under DAO No. 5 in determining just compensation.

• Market Value Computation: Whether the Board of Commissioners correctly computed the Market Value, including the area subject to CARP, the inclusion of improvements, and the applicable RCPI.

• Annual Gross Production: Whether the Board of Commissioners correctly used AGP data for crop year 2003-2004 rather than July 2002-June 2003.

• Net Income Rate: Whether the Board of Commissioners correctly based the NIR on data from Lopez Sugar Central.

• Selling Price Reckoning Period: Whether the Board of Commissioners correctly used the average SP for crop years 2003-2004 to 2010-2011 rather than the average for crop year 2003-2004 only.

• Interest Rate: Whether respondent is entitled to legal interest, and at what rate, on the just compensation awarded.

• Applicable Formula: Yes. The formula under DAO No. 5, specifically LV = (CNI x 0.9) + (MV x 0.1), was correctly applied since the Comparable Sales factor was inapplicable, there being only one sales transaction available which failed to meet the criteria under the DAO.

• Market Value Computation: Partly. The Board erred in computing the MV for the entire 11.7182-hectare property when only 10.6914 hectares was subject to CARP; the MV was recomputed to P479,704.97, but the RCPI for 2004 was correctly applied.

• Annual Gross Production: Yes. Although the AGP utilized was based on data beyond the covered period, it was a better approximation than petitioner's unsubstantiated proposed rates, and the courts below had reason to give greater credence to the data from the San Carlos Mill District Office.

• Net Income Rate: Yes. There was no reason to disregard the choice of data of the courts below since petitioner's inputs were unsubstantiated, while the data used by the Board of Commissioners was obtained from the MDO concerned.

• Selling Price Reckoning Period: No. The Board of Commissioners erred in using SP data for crop years 2003-2004 to 2010-2011; the SP used in Option 1, based on data for crop year 2003-2004, was more appropriate since just compensation must be based on the value at the time of taking, and DAO No. 5 prescribes the average of the latest available 12-months' selling prices prior to receipt of the Claim Folder.

• Interest Rate: Yes, with modification. Respondent is entitled to legal interest of 12% per annum from September 29, 2004 (time of taking) until June 30, 2013, and 6% per annum from July 1, 2013 until fully paid, pursuant to BSP Monetary Board Circular No. 799, computed only on the unpaid balance of the just compensation.

• Applicable Formula: The valuation of property or determination of just compensation is essentially a judicial function vested with the courts, not administrative agencies. The RTC-SAC enjoys original and exclusive jurisdiction in determining just compensation for lands acquired for purposes of agrarian reform. Nevertheless, in exercising this function, the RTC-SAC must consider the factors enumerated under Section 17 of RA 6657: cost of acquisition, current value of like properties, nature, actual use and income, sworn valuation by the owner, tax declarations, and assessment made by government assessors. These factors have been translated into a basic formula under item IIA of DAO No. 5. The default formula is LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), which adjusts whenever one or two factors other than MV are missing. Here, the CS factor was inapplicable because only one sales transaction was available and it was registered on September 29, 2004, beyond the required period. Thus, the governing formula was LV = (CNI x 0.9) + (MV x 0.1). While courts cannot disregard the factors and formulas in computing just compensation, they are given full discretion to relax their application when situations do not warrant strict application, subject to the condition that the reasons for deviation be clearly explained in the decision.

• Market Value Computation: The Board of Commissioners computed the MV for the entire 11.7182-hectare property though only 10.6914 hectares was subject to CARP, translating to an excess application of the MV factor to 1.0268 hectares. The Court adjusted the variables by limiting the area covered to 10.6914 hectares based on the factual findings of the courts below. On the land use issue, petitioner's witness Regencia admitted that respondent signed the ocular inspection report even before the team specified the areas devoted to corn and sugarcane, and that petitioner did not consult the Office of the Municipal Agriculture, Office of the Municipal Assessor, or adjacent landowners. In contrast, respondent presented the Municipal Agriculturist, the Municipal Agricultural Officer, and an adjacent landowner who all confirmed that 80% of the property was sugarland. The evidence hugely preponderated in favor of respondent's use of the property primarily for sugarcane cropping, sustaining the finding that 8 hectares was sugarland and 2.6914 hectares was cornland. The finding of coconut and banana trees on the property was also sustained against petitioner's bare denial. On the RCPI, DAO No. 5 ordains that the RCPI Adjustment Factor shall refer to the ratio of the most recent available RCPI for the month as of the date when the Claim Folder was received by LBP and the RCPI for the month as of the date/effectivity/registration of the valuation input. Since petitioner received the Claim Folder on June 24, 2004 and the assessment schedule became effective on January 1, 2004, the RCPI Adjustment Factor of 1.032 was correctly applied. The recomputed MV was P479,704.97.

• Annual Gross Production: Although the AGP utilized was based on data beyond the covered period, the Court deemed it a better approximation than petitioner's proposed rates. The trial court had ruled that Land Bank's documentary evidence showed its computation was based solely on production data, completely short of the mandatory factors embodied in the law, and that the credibility of the data used was questionable since the documents upon which the figures were based were not presented. Between the unsubstantiated data offered by petitioner and the data from the San Carlos Mill District Office, the courts below had reason to give greater credence to the latter.

• Net Income Rate: The Court did not give credence to petitioner's claim that the NIR applied was erroneous, finding no reason to disregard the choice of data of the courts below since petitioner's inputs were unsubstantiated, while the data used by the Board of Commissioners was obtained from the MDO concerned.

• Selling Price Reckoning Period: The Court took issue with the data used by the Board of Commissioners as SP. It is elementary in expropriation cases that just compensation should be based on the value of the property at the time of taking. The State is only obliged to make good the loss sustained by the landowner, with due consideration of the circumstances availing at the time the property was taken. Determining just compensation compels a look back to the past, not forward to the future. DAO No. 5 prescribes that SP shall be the average of the latest available 12-months' selling prices prior to the date of receipt of the CF by LBP for processing. Since petitioner received the Claim Folder on June 24, 2004, it was highly improper for the Board and the courts below to have based the SP on data for crop years 2003 up to 2011, or seven years later. The supposed price increase had already been considered by the DAR in crafting the basic formula in DAO No. 5, and the award of interest itself would answer for the delay in payment. Fixing the CNI based on future data while at the same time awarding interest amounts to double compensation. The recomputed CNI was P1,986,451.00.

• Interest Rate: Petitioner is liable to pay legal interest of 12% counted from September 29, 2004, the time of the taking, until June 30, 2013. Thereafter, or beginning July 1, 2013 until fully paid, the just compensation shall earn 6% legal interest conformably with BSP Monetary Board Circular No. 799, Series of 2013. The award of interest shall be computed only on the unpaid balance of the just compensation, since the difference between the final amount as adjudged by the court and the initial payment made by the government — which is part and parcel of the just compensation due to the property owner — should earn legal interest as a forbearance of money.

• Just Compensation at Time of Taking — Just compensation in expropriation cases must be determined based on the fair market value of the property at the time of the taking. The measure is not the taker's gain but the owner's loss; the word "just" is used to intensify the meaning of "compensation" and to convey the idea that the equivalent to be rendered shall be real, substantial, full, and ample. The nature and character of the land at the time of its taking is the principal criterion. In this case, the Court applied this doctrine to reject the use of selling price data from crop years 2003-2004 to 2010-2011, since the property was taken in September 2004 and the SP should reflect the average of the latest available 12-months' selling prices prior to receipt of the Claim Folder on June 24, 2004.

• DAR Formulas as Mandatory Guidelines — The factors and formulas in computing just compensation under DAO No. 5 cannot be disregarded by the courts. Courts are given full discretion to relax the application of these factors and formulas when faced with situations which do not warrant the formula's strict application, subject only to the condition that the reasons for the deviation be clearly explained in the decision. The DAR was tasked to issue rules and regulations to carry out the details of Section 17 of RA 6657, and it can be safely presumed that fluctuations in selling prices were already taken into consideration since only the average of available prices within the 12 months prior to receipt of the CF will be used in computing the CNI.

• Interest as Forbearance of Money — The award of interest in expropriation cases is imposed in the nature of damages for delay in payment, which makes the obligation on the part of the government one of forbearance to ensure prompt payment of the value of the land and limit the opportunity loss of the owner. The difference between the final amount as adjudged by the court and the initial payment made by the government should earn legal interest as a forbearance of money. In this case, the interest was computed only on the unpaid balance of the just compensation, at 12% from the time of taking until June 30, 2013, and 6% thereafter.

• "It is elementary in expropriation cases that just compensation should be based on the value of the property at the time of taking." — This passage states the fundamental principle governing the determination of just compensation in expropriation cases, which the Court applied to reject the use of future selling price data in computing the CNI.

• "Indeed, the State is only obliged to make good the loss sustained by the landowner, with due consideration of the circumstances availing at the time the property was taken. In other words, determining just compensation compels us to look back to the past, not forward to the future." — This passage articulates the rationale for the time-of-taking rule, emphasizing that just compensation is measured by the owner's loss at the time of taking, not by future market developments.

• "Hence, fixing the CNI based on future data, as in Option 2, while at the same time awarding interest amounts to double compensation." — This passage explains why the Board of Commissioners' recommendation of Option 2 was erroneous: using future selling price data while also awarding interest for delay would compensate the landowner twice for the same delay.

• "The award of interest is imposed in the nature of damages for delay in payment which, in effect, makes the obligation on the part of the government one of forbearance to ensure prompt payment of the value of the land and limit the opportunity loss of the owner." — This passage defines the nature of interest awarded in expropriation cases, characterizing it as damages for delay that makes the government's obligation one of forbearance.

• Land Bank vs. Manzano, 824 Phil. 339 (2018) — Cited as controlling authority for the principle that just compensation must be determined based on the fair market value of the property at the time of taking, and that the nature and character of the land at the time of taking is the principal criterion.

• National Power Corporation vs. Spouses Ileto — Cited for the definition of fair market value as "the full and fair equivalent of the property taken from its owner by the expropriator," where the measure is not the taker's gain but the owner's loss.

• JMA Agricultural Development Corporation vs. Landbank of the Philippines, G.R. No. 206026, July 10, 2019 — Cited as controlling authority for the proposition that the formula for the SP given by the DAR must be followed, and that fluctuations in selling prices were already taken into consideration by the DAR in crafting the formula.

• Land Bank of the Philippines vs. Celada — Cited for the principle that the DAR was tasked to issue rules and regulations to carry out the details of Section 17 of RA 6657, and that it can be safely presumed that fluctuations in selling prices were already considered in the formula.

• Apo Fruits Corp. vs. Landbank, 828 Phil. 652 (2018) — Cited for the principle that the award of interest is imposed in the nature of damages for delay in payment, making the government's obligation one of forbearance.

• Evergreen vs. Republic, 817 Phil. 1048 (2017) — Cited for the principle that the difference between the final amount as adjudged by the court and the initial payment made by the government should earn legal interest as a forbearance of money.

• Landbank of the Philippines vs. Spouses Chu, 808 Phil. 179 (2017) — Cited for the exception to the rule that the Court is not a trier of facts, allowing review of factual findings when the judgment is based on misapprehension of facts or when the factual findings of the tribunals below are conflicting.

• Section 17, Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Provides the factors to be considered in determining just compensation: cost of acquisition of the land, current value of like properties, nature, actual use and income, sworn valuation by the owner, tax declarations, and assessment made by government assessors, plus social and economic benefits contributed by farmers and farmworkers and by the Government. The Court held that these factors have been translated into a basic formula under DAO No. 5, which the RTC-SAC must take into consideration.

• Article III, Section 9, 1987 Constitution — Provides that "private property shall not be taken for public use without just compensation." The Court cited this provision in explaining that the amount of just compensation must be determined based on the fair market value of the property at the time of taking.

• DAO No. 5, s. 1998 (Revised Rules and Regulations Governing the Valuation of Lands Voluntarily Offered or Compulsorily Acquired) — Prescribes the basic formula for land valuation: LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), with adjustments when one or two factors are missing. The Court applied the adjusted formula LV = (CNI x 0.9) + (MV x 0.1) since the CS factor was inapplicable. The DAO also defines the SP as the average of the latest available 12-months' selling prices prior to the date of receipt of the CF by LBP, and the RCPI Adjustment Factor as the ratio of the most recent available RCPI as of the date of receipt of the CF to the RCPI as of the date/effectivity/registration of the valuation input.

• Bangko Sentral ng Pilipinas Monetary Board Circular No. 799, Series of 2013 — Lowered the legal interest rate from 12% to 6% per annum effective July 1, 2013. The Court applied this circular to reduce the interest rate on the unpaid balance of just compensation from 12% to 6% beginning July 1, 2013.

• Rule 45, Rules of Court — Provides that only questions of law may be raised in petitions for review on certiorari, as the Court is not a trier of facts. The Court noted the exception allowing review of factual findings when the judgment is based on misapprehension of facts or when the factual findings of the tribunals below are conflicting, which applied here since the valuation of the PARAD was cogently at variance with the valuation of the RTC-SAC.

Gesmundo, C.J. (Chairperson), Leonen, and M. Lopez, JJ., concurred in the decision.

• Caguioa, J. (Separate Opinion) — Justice Caguioa filed a separate opinion, the contents of which are not detailed in the majority decision beyond the notation that he "Please See Separate Opinion."