Land Bank of the Philippines vs. Esteban

Courts must consider all factors enumerated under Section 17 of R.A. No. 6657 and the applicable DAR formulas in determining just compensation for CARP-covered properties, and a remand for reception of further evidence is warranted where neither party nor the trial court adequately considered those factors. While courts may deviate from the DAR basic formula in the exercise of judicial discretion, such deviation must be supported by a reasoned explanation grounded on the evidence on record.

Respondent Esperanza M. Esteban owned an untitled parcel of land identified as Lot 2493, Cad. 537-D, located at Barangay Mahayag, San Miguel, Surigao del Sur, comprising 6.1833 hectares and covered by Tax Declaration No. B-16-12-236. Petitioner Land Bank of the Philippines (LBP) is the government financial institution designated under Section 64 of R.A. No. 6657, in relation to Section 74 of R.A. No. 3844, to aid in implementing the Comprehensive Agrarian Reform Program and to act as financial intermediary of the Agrarian Reform Fund. Under the agrarian reform framework, landowners may voluntarily offer to sell their agricultural lands to the Department of Agrarian Reform for acquisition and redistribution, with LBP tasked to determine and pay just compensation.

Respondent Esperanza M. Esteban owned an untitled parcel of land identified as Lot 2493, Cad. 537-D, situated at Barangay Mahayag, San Miguel, Surigao del Sur, with an area of 6.1833 hectares, covered by Tax Declaration No. B-16-12-236. On June 20, 1994, respondent made a voluntary offer to sell the subject property to the Department of Agrarian Reform (DAR) for acquisition under R.A. No. 6657, at the price of ₱60,000.00 per hectare, or a total of ₱370,998.00.

Following its evaluation of the property, LBP's Land Valuation Office XI issued on August 16, 1999 its Claims Valuation and Processing Form No. LBP-XI-VO-95-6697, setting the just compensation at ₱12,295.42 per hectare, or a total of ₱76,026.27, based on the alternate formula LV = MV x 2, where LV is Land Value and MV is Market Value per Tax Declaration. Respondent rejected LBP's valuation and, on November 14, 2002, filed a petition for judicial determination of just compensation with the RTC.

During trial, the RTC constituted a Board of Commissioners (BOC) to examine and appraise the subject property. The BOC recommended a valuation of ₱43,327.16 per hectare, or a total of ₱267,907.88. The RTC rendered judgment on October 18, 2005 in favor of respondent, noting the BOC's finding that the subject property contained five hectares of unirrigated land already planted with palay while about one hectare was idle. The RTC fixed just compensation for Lot 2493 at ₱43,327.16 per hectare, or a total of ₱267,907.83 for the entire 6.1833 hectares, and ordered LBP to pay within fifteen days from finality of the decision.

LBP appealed to the Court of Appeals, asserting that the RTC violated the valuation formula under DAR Administrative Order No. 5, series of 1998, in connection with Section 17 of R.A. No. 6657. The CA, however, denied the petition, ruling that the DAR formula is not mandatory and that courts may set it aside in the exercise of judicial discretion. The CA found credence in the trial court's evaluation of the property's location, land use, and current sale value of nearby properties. LBP's motion for reconsideration was likewise denied.

• Valuation Formula Violation: Petitioner argued that the RTC, in fixing just compensation at ₱267,907.83, violated the formula for valuation stated in DAR Administrative Order No. 5, series of 1998, in connection with Section 17 of R.A. No. 6657.

• Proper Valuation: Whether the Court of Appeals erred in affirming the RTC's decision fixing just compensation for the subject property.

• Proper Valuation: Yes. The CA erred in affirming the RTC decision, because neither the RTC nor LBP considered all factors enumerated under Section 17 of R.A. No. 6657, and LBP failed to adduce competent evidence to support its valuation. The case was remanded for reception of further evidence.

• Proper Valuation: Section 17 of R.A. No. 6657 enumerates the factors that must be considered in determining just compensation: (a) cost of acquisition of the land, (b) current value of like properties, (c) nature, actual use, and income of the property, (d) owner's sworn valuation, (e) tax declarations, (f) assessment by government assessors, (g) social and economic benefits contributed by farmers, farmworkers, and government, and (h) non-payment of taxes or loans from government financing institutions. The DAR formulas, as translated from these factors, partake of the nature of statutes and carry the presumption of legality; courts must consider them and may deviate only with a reasoned explanation grounded on the evidence on record. In the instant case, the parties used the alternate formula LV = MV x 2. However, the RTC did not consider all the Section 17 factors, and LBP likewise failed to take all of them into account and failed to adduce competent evidence supporting its valuation. Because neither the trial court nor LBP had properly applied the statutory framework, a remand was necessary for the RTC, acting as a special agrarian court, to receive further evidence and determine just compensation pursuant to Section 17 of R.A. No. 6657 and applicable DAR regulations.

• Just Compensation in Agrarian Reform — Just compensation is defined as "the full and fair equivalent of the property taken from its owner by the expropriator." The measure of compensation is not the taker's gain but the owner's loss. All facts as to the condition of the property, its surroundings, improvements, and capabilities should be considered. The Court applied this definition to underscore that the determination of just compensation requires a comprehensive appreciation of all relevant factors, not merely a mechanical application of a formula.

• Mandatory Consideration of Section 17 Factors and DAR Formulas — The factors listed under Section 17 of R.A. No. 6657 and the resulting DAR formulas provide a uniform framework for computing just compensation, ensuring that amounts paid to landowners are not arbitrary or contradictory to agrarian reform objectives. DAR formulas partake of the nature of statutes and carry the presumption of legality. Courts shall consider, and not disregard, these formulas. When strict application is not warranted, courts may relax the formula's application in the exercise of judicial discretion, provided they clearly explain in their decision their reasons for deviation, as borne by the evidence on record. Courts possess the power to make a final determination of just compensation. The Court applied this doctrine by finding that both the RTC and LBP failed to consider all Section 17 factors, necessitating a remand.

• "The courts are not at liberty to deviate from the DAR basic formula, unless such deviations are amply supported by facts and reasoned justification." — This passage states the controlling rule on the limits of judicial discretion in departing from DAR valuation formulas, requiring factual support and reasoned explanation for any deviation.

• "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 quotation, drawn from Alfonso vs. Land Bank of the Philippines, sets forth the canonical formulation of the Court's framework for balancing statutory/DAR formula compliance with judicial discretion in just compensation cases.

• "In accordance with this Court's ruling in Alfonso, a remand of this case for reception of further evidence is necessary in order for the trial court, acting as a special agrarian court, to determine just compensation pursuant to Section 17 of R.A. No. 6657 and the applicable DAR regulations." — This passage articulates the ratio decidendi for the disposition, explaining why remand rather than outright valuation was the proper remedy.

• Land Bank of the Philippines vs. American Rubber Corp., 715 Phil. 154 (2013) — Cited for the definition of just compensation as the full and fair equivalent of the property taken, where the measure is the owner's loss, not the taker's gain.

• Alfonso vs. Land Bank of the Philippines, 801 Phil. 217 (2016) — Controlling precedent followed for the rule that DAR formulas partake of the nature of statutes with a presumption of legality, that courts must consider them, and that deviation requires a reasoned explanation grounded on evidence. The Court explicitly applied this ruling to justify remand.

• Land Bank of the Philippines vs. Rural Bank of Hermosa (Bataan), Inc., 814 Phil. 157 (2017) — Cited for the enumeration of the eight factors under Section 17 of R.A. No. 6657 that must be considered in determining just compensation.

• Land Bank of the Philippines vs. Prado Verde Corporation, G.R. No. 208004, July 30, 2018 — Cited for the proposition that courts are not at liberty to deviate from the DAR basic formula unless deviations are amply supported by facts and reasoned justification.

• Land Bank of the Phils. vs. Heirs of Jesus Alsua, 753 Phil. 323 (2015) — Cited for the statement of the DAR basic formula (LV = (CNI x 0.60) + (CS x 0.30) + (MV x 0.10)) and the rule that alternate formulas apply when one or more factors are absent.

• Land Bank of the Phils. vs. Heirs of Lorenzo Tañada, 803 Phil. 103 (2017) — Cited in support of the Court's disposition remanding the case for reception of further evidence.

• Section 17, R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) — Enumerates the factors for determining just compensation: cost of acquisition, current value of like properties, nature/actual use/income, owner's sworn valuation, tax declarations, government assessors' assessments, social and economic benefits, and non-payment of taxes or loans. The Court found that neither the RTC nor LBP had considered all these factors, warranting remand.

• Section 64, R.A. No. 6657 — Designates LBP as the financial intermediary for the CARP, charged with ensuring that the social justice objectives of the CARP enjoy preference among its priorities.

• Section 74, R.A. No. 3844 (Agricultural Land Reform Code) — Provides for the creation of the Land Bank of the Philippines to finance the acquisition by the Government of landed estates for division and resale to small landholders.

• DAR Administrative Order No. 5, series of 1998 — Prescribes the basic formula for land valuation (LV = (CNI x 0.60) + (CS x 0.30) + (MV x 0.10)) and alternate formulas when one or more factors are not present, relevant, or applicable. The parties in this case used the alternate formula LV = MV x 2.

Leonen (Chairperson), Gesmundo, and Carandang, JJ., concurred. Zalameda, J., was on official leave.