Land Bank of the Philippines vs. Hababag, Sr.

Just compensation in agrarian reform expropriation must be determined with due consideration to the factors enumerated in Section 17 of RA 6657, and courts may adopt either the DAR formula or proceed with their own application for as long as these factors have been duly considered. The Income Productivity Approach, which is characterized by the element of futurity and adopts an investor's point of view, is inconsistent with the concept of market value fixed at the time of actual taking and cannot be sustained.

Alfredo Hababag, Sr. owned several parcels of agricultural land with an aggregate area of 82.4927 hectares situated in Barangays Carriedo, Manapao, and Casili, Municipality of Gubat, Sorsogon, covered by Transfer Certificate of Title No. T-12107. The landholdings were voluntarily offered for sale to the government under Republic Act No. 6657, the "Comprehensive Agrarian Reform Law of 1988," and 69.3857 hectares thereof were acquired in 1990. The Land Bank of the Philippines initially valued the subject lands at ₱1,237,850.00, which Alfredo rejected, leading to summary administrative proceedings before the Provincial Agrarian Reform Adjudicator of the DAR Adjudication Board.

Alfredo Hababag, Sr. owned several parcels of agricultural land with an aggregate area of 82.4927 hectares situated in Barangays Carriedo, Manapao, and Casili, in the Municipality of Gubat, Sorsogon, covered by Transfer Certificate of Title No. T-12107. These landholdings were voluntarily offered for sale to the government under Republic Act No. 6657, but only 69.3857 hectares thereof, consisting of 66.9961 hectares of coconut land, 1.3896 hectares of unirrigated riceland, and 1.0000 hectare of cogonal land, were acquired in 1990. The Land Bank of the Philippines initially valued the subject lands at ₱1,237,850.00, but Alfredo rejected the valuation. After summary administrative proceedings, the Provincial Agrarian Reform Adjudicator of the DAR Adjudication Board fixed the value at ₱1,292,553.20.

Dissatisfied, Alfredo filed a Complaint for the determination of just compensation before the RTC, which appointed two commissioners designated by each party. The LBP-appointed commissioner, Francisco M. Corcuera, submitted a Commissioner's Report fixing just compensation at ₱2,358,385.48 based on DAR Administrative Order No. 6, series of 1992, as amended by DAR AO No. 11, series of 1994. The commissioner designated by Alfredo, Margarito Cuba of Banco Sorsogon, valued the lands at ₱5,420,600.00. On December 20, 1999, the RTC rendered a Decision fixing just compensation at ₱5,653,940.00, applying the Income Productivity Approach and crediting Commissioner Cuba's Inspection and Appraisal Report as "the more realistic appraisal considering the economic condition of the country as well as the acquisition of the property and the present assessed value and also the proximity of the property to the commercial center."

Alfredo appealed to the CA, which was docketed as CA-G.R. CV No. 66824, averring that the RTC committed a mathematical error in computing the amount of just compensation and in fixing the remaining productive life of the coconut trees to only 20 years instead of 40 to 45 years. On January 16, 2004, the CA found a mathematical error in the computation of the reasonable income from the coconut trees, which if corrected would have been ₱23,335,200.00, and came up with a total of ₱26,800,700.00. It rejected Alfredo's claim for adjustment of the productive life of the coconut trees, giving credence to Commissioner Cuba's report stating a remaining productive life of only 20 years, and remanded the case for re-computation applying the Income Productivity Approach.

Pursuant to the CA Decision, the RTC ordered Commissioner Cuba to re-compute the accurate amount of just compensation. Commissioner Cuba submitted a re-computation estimating the income of copra for the remaining 20 years economic life of the 9,723 coconut fruit-bearing trees at ₱35,002,800.00, while retaining the total appraised values for the subject lands and the plants/trees at ₱3,465,500.00 and ₱1,955,100.00, respectively. On March 22, 2004, the RTC rendered an Amended Decision fixing just compensation at ₱40,423,400.00. With their motions for reconsideration denied, the LBP and the DAR filed separate petitions for review with the CA. The LBP averred that the RTC gravely erred in disregarding the factors under Section 17 of RA 6657 and DAR AO 6-92, as amended by DAR AO 11-94, as ordained in LBP vs. Banal. The DAR contended that the RTC erred in including the estimated income of the coconut trees for their remaining economic life and in adjudging a just compensation award higher than the offered valuation of the landowner. Pending appeal, Alfredo passed away and was substituted by his heirs.

In the assailed Decision dated November 15, 2005, the CA set aside the RTC's valuation for failure to give due consideration to the factors enumerated in Section 17 of RA 6657 and the formula under DAR AO 6-92, as amended by DAR AO 11-94. The CA found that the amount as recomputed by the RTC was way beyond the landowner's offer of ₱1,750,000.00 as stated in the Claims Valuation and Processing Form, contrary to the limitation imposed by DAR AO 6-92. It gave more credence to Commissioner Corcuera's report and computed just compensation at ₱2,398,487.24. The CA likewise considered the government's obligation to pay just compensation to be in the nature of a forbearance of money and imposed interest at 12% p.a., reckoned from the time of the taking or the filing of the complaint, whichever is earlier.

• Interest on Just Compensation (G.R. No. 172352 — LBP): The LBP assailed the award of interests by the CA, contending that since the Hababag Heirs were already paid the provisional compensation, no interest can legally accrue to them. It further argued that unless there is a final and executory decision, it is under no obligation to pay interests since there could be no delay as of yet in the payment of just compensation. It maintained that RA 6657 did not provide for the payment of such interests.

• Propriety of the CA's Valuation (G.R. Nos. 172387-88 — Hababag Heirs): The Hababag Heirs contended that the CA erred in setting aside the just compensation fixed by the RTC which was in accordance with the provisions of Section 17 of RA 6657 and the final decision of the CA in CA-G.R. CV No. 66824 directing its re-computation.

• Compliance with Section 17 Factors (LBP before the CA): The LBP averred that the RTC gravely erred in disregarding the factors under Section 17 of RA 6657 and DAR AO 6-92, as amended by DAR AO 11-94, as ordained by the Court in the case of LBP vs. Banal.

• Inclusion of Estimated Income (DAR before the CA): The DAR contended that the RTC erred in including in its computation the estimated income of the coconut trees for their remaining economic life (computed at 20 years) and in adjudging a just compensation award which is higher than the offered valuation of the landowner.

• Propriety of the CA's Valuation: Whether the Court of Appeals correctly set aside the RTC's valuation and fixed just compensation at ₱2,398,487.24 based on the DAR formula and the factors under Section 17 of RA 6657.

• Award of Interest: Whether the Court of Appeals correctly imposed interest at 12% p.a. on the just compensation award reckoned from the time of the taking.

• Propriety of the CA's Valuation: Yes. The CA's valuation, which made use of the DAR formula, was reflective of the factors set forth in Section 17 of RA 6657. The RTC's application of the Income Productivity Approach was improper, as it contradicted the definition of "market value" and deviated from the statutory factors.

• Award of Interest: Yes, with modification. The just compensation due to the landowners is treated as an effective forbearance on the part of the State, and interest runs as a matter of law from the time of the taking. The interest rate should be 12% p.a. from the taking until June 30, 2013, and 6% p.a. from July 1, 2013 onwards until full payment.

• Propriety of the CA's Valuation: The Court defined "just compensation" as the full and fair equivalent of the property taken from its owner by the expropriator, emphasizing that the measure is not the taker's gain but the owner's loss. The RTC, sitting as a Special Agrarian Court, has original and exclusive power to determine just compensation, guided by the factors enumerated in Section 17 of RA 6657: (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 farmworkers, and by the government to the property; and (h) the nonpayment of taxes or loans secured from any government financing institution on the said land. Pursuant to its rule-making power under Section 49 of RA 6657, the DAR translated these factors into a basic formula, which courts have often referred to and applied. However, courts are not constrained to adopt the said formula in every case since the determination of just compensation essentially partakes the nature of a judicial function; courts may either adopt the DAR formula or proceed with their own application for as long as the factors listed in Section 17 have been duly considered.

The Court found the CA's valuation, adopted from the LBP's own computation, to be based on: (a) actual production data; (b) the appropriate industry selling prices of the products from the Philippine Coconut Authority and the Bureau of Agricultural Statistics of Sorsogon; and (c) the actual uses of the property. The income from the coconut fruit-bearing trees, as well as the unirrigated riceland, cumulative cost of the non-fruit-bearing trees, and market value of the cogonal land were duly considered. The holistic data gathered adequately considered the factors set forth in Section 17 of RA 6657, as well as the DAR formula.

The Court found the RTC's valuation improper because the Income Productivity Approach approximated the income for the remaining productive life of the crops without considering fortuitous events and plant diseases, and with the expectation that they would be compensated by developments which could be made by the property owner. The constitutional limitation of just compensation is the sum equivalent of the market value of the property, defined as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between one who receives and one who desires to sell it, fixed at the time of the actual taking by the government. The Income Productivity Approach, based on the principle of anticipation, is largely characterized by the element of futurity and is inconsistent with valuing the expropriated property at the time of the taking.

Furthermore, the Income Productivity Approach adopts an investor's point of view which is off-tangent with the governmental purpose behind the acquisition of agricultural lands. Agricultural lands are not acquired for investment purposes but for redistribution to landless farmers to lift their economic status by enabling them to own directly or collectively the lands they till or to receive a just share of the fruits thereof. Farmer-beneficiaries generally live on a hand-to-mouth existence, and their source of repaying the just compensation is derived from their income from cultivation of the land. It would be highly inequitable that in the 30-year allowable period to pay the annual amortizations, farmer-beneficiaries would be required to pay for the same income they expect to earn therefrom on top of the computed market value of the landholdings.

• Award of Interest: The just compensation due to the landowners for their expropriated property is treated as an effective forbearance on the part of the State. The rationale, as enunciated in Apo Fruits Corporation vs. LBP, is to compensate the landowners for the income they would have made had they been properly compensated for their properties at the time of the taking. The award of 12% interest is imposed in the nature of damages for the delay in the payment of the full just compensation award. In the present case, the LBP had already made the corresponding deposit of its offered valuation in the amount of ₱1,237,850.00 in cash and in bonds prior to the DAR's possession of the property. This amount is lower than the just compensation awarded, and hence, the payment of interests remains in order insofar as the unpaid balance is concerned.

The interests should be computed from the time of the taking of the subject lands, based on the principle that interest "runs as a matter of law and follows from the right of the landowner to be placed in as good position as money can accomplish, as of the date of the taking." From the time of the taking up until June 30, 2013, the interest must be pegged at 12% p.a. pursuant to Section 2 of Central Bank Circular No. 905, series of 1982, which was the prevailing rule on interest rates during such period. From July 1, 2013 onwards and until full payment, the interest rate should be pegged at 6% p.a. pursuant to Bangko Sentral ng Pilipinas Circular No. 799, series of 2013, which amended the old 12% p.a. interest rate.

• Just Compensation in Agrarian Reform Expropriation — Just compensation is the full and fair equivalent of the property taken from its owner by the expropriator; the measure is not the taker's gain but the owner's loss. The word "just" is used to intensify the meaning of "compensation" to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full, and ample. In determining just compensation, courts must consider the factors enumerated in Section 17 of RA 6657, and may either adopt the DAR formula or proceed with their own application for as long as these factors have been duly considered.

• Market Value as the Constitutional Limitation — The constitutional limitation of just compensation is the sum equivalent to the market value of the property, defined as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between one who receives and one who desires to sell it, fixed at the time of the actual taking by the government. Valuation approaches characterized by the element of futurity, such as the Income Productivity Approach, are inconsistent with this concept.

• Income Productivity Approach Rejected — The Income Productivity Approach, which approximates the income for the remaining productive life of crops without considering fortuitous events and plant diseases, adopts an investor's point of view that is off-tangent with the governmental purpose behind the acquisition of agricultural lands. Agricultural lands are not acquired for investment purposes but for redistribution to landless farmers to lift their economic status. It would be inequitable for farmer-beneficiaries to pay for the same income they expect to earn from the land on top of the computed market value of the landholdings.

• Interest on Just Compensation as Effective Forbearance — The just compensation due to landowners for expropriated property is treated as an effective forbearance on the part of the State. The award of interest is imposed in the nature of damages for the delay in the payment of the full just compensation award, to compensate the landowners for the income they would have made had they been properly compensated at the time of the taking. Interest runs as a matter of law from the time of the taking, based on the right of the landowner to be placed in as good a position as money can accomplish as of the date of the taking.

• "Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. It has been repeatedly stressed by this Court that the measure is not the taker's gain but the owner's loss. The word 'just' is used to intensify the meaning of the word 'compensation' to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full [and] ample." — This passage, quoted from Association of Small Landowners in the Philippines, Inc. vs. Hon. Secretary of Agrarian Reform, defines the canonical formulation of just compensation in Philippine expropriation jurisprudence.

• "The Court has repeatedly ruled that the constitutional limitation of just compensation is considered to be the sum equivalent of the market value of the property, which is, in turn, defined as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between one who receives and one who desires to sell it, fixed at the time of the actual taking by the government." — This passage articulates the controlling definition of market value as the constitutional benchmark for just compensation, which the Court used to reject the RTC's Income Productivity Approach.

• "It would therefore be highly inequitable that in the 30-year allowable period to pay the annual amortizations for the lands, farmer-beneficiaries would be required to pay for the same income they expect to earn therefrom on top of the computed market value of the landholdings. Such could not have been the intent of the State's agrarian reform program." — This passage explains the policy rationale for rejecting the Income Productivity Approach, grounding the ruling in the social justice purpose of the agrarian reform program.

• "The rationale therefor, as enunciated in the case of Apo Fruits Corporation v. LBP, is to compensate the landowners for the income they would have made had they been properly compensated for their properties at the time of the taking. In other words, the award of 12% interests is imposed in the nature of damages for the delay in the payment of the full just compensation award." — This passage establishes the doctrinal basis for awarding interest on just compensation as effective forbearance, treating it as damages for delay in payment.

• Association of Small Landowners in the Philippines, Inc. vs. Hon. Secretary of Agrarian Reform, 256 Phil. 777 (1989) — Controlling precedent cited for the definition of "just compensation" as the full and fair equivalent of the property taken, with the measure being the owner's loss rather than the taker's gain.

• LBP vs. Banal, 478 Phil. 701 (2004) — Cited by the LBP before the CA as authority that the RTC gravely erred in disregarding the factors under Section 17 of RA 6657 and DAR AO 6-92, as amended by DAR AO 11-94.

• Apo Fruits Corporation vs. LBP, 647 Phil. 251 (2010) — Followed for the rationale that interest on just compensation is awarded to compensate landowners for the income they would have made had they been properly compensated at the time of the taking.

• Republic vs. Rural Bank of Kabacan, Inc., 680 Phil. 247 (2012) — Cited for the definition of market value as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, fixed at the time of the actual taking.

• LBP vs. Palmares, G.R. No. 192890, June 17, 2013, 698 SCRA 655 — Cited for the proposition that the ascertainment of just compensation on the basis of the landholdings' nature, location, and market value, as well as the volume and value of the produce, is valid and accords with Section 17 of RA 6657 and the DAR formula.

• LBP vs. Santiago, Jr., G.R. No. 182209, October 3, 2012, 682 SCRA 264 — Cited for the principle that just compensation due to landowners for expropriated property is treated as an effective forbearance on the part of the State.

• Sy vs. Local Government of Quezon City, G.R. No. 202690, June 5, 2013, 697 SCRA 621 — Cited for the principle that interest runs as a matter of law and follows from the right of the landowner to be placed in as good a position as money can accomplish, as of the date of the taking.

• Section 17, Republic Act No. 6657 — Enumerates the factors to be considered in determining just compensation: acquisition cost of the land, current value of like properties, nature and actual use of the property and income therefrom, owner's sworn valuation, tax declarations, assessment made by government assessors, social and economic benefits contributed by farmers and farmworkers and by the government, and nonpayment of taxes or loans secured from any government financing institution. The Court applied these factors in sustaining the CA's valuation.

• Section 49, Republic Act No. 6657 — Grants the PARC and the DAR the power to issue rules and regulations to carry out the objects and purposes of the Act. This provision authorized the DAR to translate the Section 17 factors into the basic formula applied in the case.

• Section 57, Republic Act No. 6657 — Confers upon the Special Agrarian Courts original and exclusive jurisdiction over all petitions for the determination of just compensation to landowners.

• Section 26, Republic Act No. 6657 — Provides for payment by farmer-beneficiaries in thirty annual amortizations at six percent interest per annum. The Court cited this provision to illustrate the inequity of requiring farmer-beneficiaries to pay for the same income they expect to earn from the land on top of the computed market value.

• Section 4, Article XIII, 1987 Philippine Constitution — Mandates the State to undertake an agrarian reform program founded on the right of farmers and regular farmworkers who are landless to own directly or collectively the lands they till, subject to the payment of just compensation. The Court cited this provision to ground the policy rationale for rejecting the Income Productivity Approach.

• Section 2, Central Bank Circular No. 905, series of 1982 — Fixed the rate of interest for the loan or forbearance of any money, goods, or credits at twelve percent per annum. The Court applied this rate for the period from the taking until June 30, 2013.

• Section 1, Bangko Sentral ng Pilipinas Circular No. 799, series of 2013 — Amended the interest rate to six percent per annum effective July 1, 2013. The Court applied this rate from July 1, 2013 onwards until full payment.

Sereno, C.J. (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ., concurred.