Land Bank of the Philippines vs. Hilado

Special Agrarian Courts are mandated to consider the DAR formula and the valuation factors under Section 17 of R.A. No. 6657 in determining just compensation for CARP-covered properties, but may deviate from a strict application of the formula provided the deviation is sufficiently justified by the surrounding circumstances and clearly explained in the decision.

Respondent Ludovico D. Hilado is the registered owner of a 31.3196-hectare parcel of land in Brgy. Mailum, Bago City, Negros Occidental, covered by TCT No. T-14735. On October 24, 2000, he voluntarily offered his property for sale to the DAR for coverage under the Comprehensive Agrarian Reform Program (CARP) at ₱200,000.00 per hectare. Upon ocular inspection, only the 17.9302-hectare portion devoted to rice, corn, and ipil-ipil planting, with a small homelot, was included in the program; the remaining 13.3894 hectares, identified as an uncultivated slope, was excluded. The taking occurred while R.A. No. 6657 (the Comprehensive Agrarian Reform Law of 1988) was in effect, and the claim folder was received by LBP prior to July 1, 2009, so just compensation is governed by Section 17 of R.A. No. 6657 as originally worded, prior to its amendment by R.A. No. 9700.

Respondent Ludovico D. Hilado is the registered owner of a 31.3196-hectare parcel of land in Brgy. Mailum, Bago City, Negros Occidental, covered by TCT No. T-14735. On October 24, 2000, he voluntarily offered the property for sale to the DAR for CARP coverage at ₱200,000.00 per hectare. Upon ocular inspection, only 17.9302 hectares — devoted to rice, corn, and ipil-ipil, with a small homelot — were deemed includable; the remaining 13.3894 hectares, identified as an uncultivated slope, were excluded.

LBP valued the CARP-covered portion at ₱767,641.07, computed by land use: ₱46,064.46 for 0.5473 hectares of unirrigated riceland at ₱84,166.74 per hectare; ₱276,789.44 for 8.3188 hectares of cornland at ₱33,272.76 per hectare; ₱437,485.36 for 8.9153 hectares of ipil-ipil at ₱49,071.30 per hectare; and ₱7,301.81 for 0.1488 hectare of homelot at ₱49,071.30 per hectare. Respondent rejected the valuation and filed a petition for preliminary determination of just compensation before the DARAB, docketed as DARAB Case No. R-0605-1357-01. After re-inspection and reception of evidence, the DARAB sustained LBP's valuation; the amount of ₱767,641.07 was released to respondent without prejudice to his filing a case for judicial determination of just compensation.

On November 12, 2002, respondent filed an action for fixing of just compensation before the RTC of Bacolod City, Branch 46, sitting as a SAC, docketed as CAR Case No. 02-038. He alleged that LBP's valuation was unfair because it was based solely on the crops planted at the time of inspection, without regard to soil classification and productivity. He pointed out that the property is near the highway, runs parallel to the Ma-ao river usable for irrigation, was formerly planted with sugarcane, and that the prevailing buying price in the area was already ₱200,000.00 per hectare. LBP countered that its valuation was computed using the formula under DAR A.O. No. 5, series of 1998.

On August 17, 2010, the SAC rendered a Decision fixing just compensation at ₱1,496,258.00, allocating ₱100,000.00 per hectare for the 8.3188-hectare cornland, ₱200,000.00 per hectare for the 0.5473-hectare riceland, ₱60,000.00 per hectare for the 8.9153-hectare ipil-ipil area, and ₱20,000.00 for the 0.1488-hectare homelot. The SAC based its conclusion on the market value per tax declaration and the alleged assessment by LBP on adjacent land, stating that LBP's valuation was "enormously low, inadequate and contrary to the sporting idea of fairness and equity." LBP's motion for reconsideration was denied on November 17, 2010. LBP then filed a petition for review before the CA, which dismissed it outright on March 30, 2011 on procedural grounds — non-current IBP and PTR receipts of the signing lawyers and the notary public, and improper proof of service. On September 27, 2012, the CA denied LBP's motion for reconsideration, holding that even glossing over procedural infirmities, the petition was dismissible for lack of merit and affirming the SAC's valuation.

• Procedural Dismissal: LBP argued that the CA erred in dismissing its petition outright on purely technical grounds, as the rules of procedure should be liberally applied to serve substantial justice, and its subsequent compliance through the motion for reconsideration should have been received with liberality.
• SAC Valuation: LBP maintained that the CA committed serious error in adopting the SAC's valuation of ₱1,496,258.00, because the SAC clearly ignored the valuation factors enumerated under Section 17 of R.A. No. 6657 as translated into the basic formula in DAR A.O. No. 5, series of 1998, and failed to justify any deviation therefrom.

• Procedural Dismissal: Whether the CA erred in dismissing LBP's petition for review on purely technical grounds.
• Binding Character of DAR Formula: Whether the SAC is bound to consider the valuation factors under Section 17 of R.A. No. 6657 and the formula laid down in DAR A.O. No. 5, series of 1998 in determining just compensation, and whether the SAC's valuation may be upheld despite its failure to apply or justify deviation from the formula.

• Procedural Dismissal: Yes. The CA erred in dismissing the petition on purely technical grounds; rules of procedure are mere tools to expedite resolution and should not override substantial justice, and LBP's explanation and subsequent compliance should have inspired liberality.
• Binding Character of DAR Formula: No. The SAC's valuation cannot be upheld because it failed to consider the valuation factors under Section 17 of R.A. No. 6657 and the DAR formula under A.O. No. 5, series of 1998, and did not explain any reason for its non-observance; the case must be remanded for recomputation.

• Procedural Dismissal: The Court reiterated that cases should be determined on the merits rather than on technicalities, as rules of procedure are adopted to help secure, not override, substantial justice. A strict and rigid application of the rules that results in technicalities tending to frustrate rather than promote justice must be avoided. LBP's explanation and subsequent compliance through its motion for reconsideration should have inspired an attitude of liberality on the part of the CA. While the CA appeared to have glossed over the procedural infirmities in its second resolution, it nonetheless upheld the dismissal for lack of merit rather than reinstating the petition, which was erroneous.

• Binding Character of DAR Formula: The determination of just compensation is essentially a judicial function vested in the courts, with SACs having original and exclusive jurisdiction under Section 57 of R.A. No. 6657. Section 17 of R.A. No. 6657 prescribes the valuation factors to be considered. DAR A.O. No. 5, series of 1998 "filled in the details" of Section 17 by providing a basic formula: LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), with alternative formulas when certain factors are absent. Drawing from Alfonso vs. Land Bank of the Philippines, the Court held that the DAR formulas partake of the nature of statutes and have in their favor the presumption of legality; courts shall consider, and not disregard, these formulas. Courts may relax the formula's application to fit the factual situation, provided they clearly explain their reasons for deviation. Applying these principles, the SAC's decision revealed that it did not consider the Section 17 factors, did not adhere to the DAR formula, and did not discuss reasons for non-observance. The SAC merely stated that LBP's valuation was "enormously low" and based its own valuation solely on the market value per tax declaration and the alleged assessment of adjacent land, without explaining how the per-hectare values for each land use were derived. The SAC's valuation was therefore illegal and could not be upheld. However, the Court could not automatically adopt LBP's calculation, as the veracity of the facts and figures used would require resolution of factual questions improper in a Rule 45 petition, the Court not being a trier of facts. The case was accordingly remanded for recomputation.

• Mandatory Consideration of DAR Formula in Just Compensation — Special Agrarian Courts are mandated to consider the valuation factors under Section 17 of R.A. No. 6657 and the formula laid down in DAR A.O. No. 5, series of 1998 in determining just compensation for CARP-covered properties. The DAR formulas partake of the nature of statutes and carry the presumption of legality. Courts may deviate from a strict application of the formula to fit the factual circumstances, subject to the condition that they clearly explain in their decision their reasons for the deviation, as borne by the evidence on record. This doctrine was drawn from Alfonso vs. Land Bank of the Philippines (801 Phil. 217 [2016]) and applied to strike down the SAC's valuation for total non-observance of the formula without justification.

• Dismissal on Technicalities Frowned Upon — Cases should be determined on the merits after full opportunity for all parties to ventilate their causes and defenses, rather than on technicality or procedural imperfection. Rules of procedure are mere tools to expedite resolution and should not be applied rigidly so as to frustrate substantial justice. A party's explanation and subsequent compliance should inspire liberality rather than outright dismissal.

• "Until and unless declared invalid in a proper case, the DAR formulas partake of the nature of statutes, which under the 2009 amendment became law itself, and thus have in their favor the presumption of legality, such that courts shall consider, and not disregard, these formulas in the determination of just compensation for properties covered by the CARP." — This passage, quoted from Alfonso vs. Land Bank of the Philippines, articulates the binding character of the DAR formula on SACs and is the doctrinal foundation for requiring courts to consider the formula in just compensation determinations.

• "When faced with situations which do not warrant the formula's strict application, courts may, in the exercise of their judicial discretion, relax the formula's application to fit the factual situations before them, subject only to the condition that they clearly explain in their Decision their reasons (as borne by the evidence on record) for the deviation undertaken." — This defines the scope of judicial discretion available to SACs: deviation is permissible but must be justified and explained, a condition the SAC in this case failed to satisfy.

• "The dismissal of cases purely on technical grounds is frowned upon and the rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help secure, not override, substantial justice, and thereby defeat their very ends." — This states the governing principle on procedural liberality that led the Court to annul the CA's outright dismissal of LBP's petition.

• Alfonso vs. Land Bank of the Philippines, 801 Phil. 217 (2016) — Controlling precedent. The Court relied on this case to harmonize the SAC's exercise of judicial discretion with the obligatory application of Section 17 valuation factors and the DAR formula, establishing that courts must consider the formula and may deviate only with clear justification.

• Land Bank of the Philippines vs. Celada, 515 Phil. 467 (2006) — Cited for the proposition that the valuation of property or determination of just compensation in eminent domain proceedings is essentially a judicial function vested in the courts and not in administrative agencies.

• Land Bank of the Philippines vs. Heirs of Lorenzo Tañada, et al., 803 Phil. 103 (2017) — Cited for the principle that the Supreme Court is not a trier of facts, supporting the Court's refusal to adopt LBP's own calculation and its decision to remand instead.

• Heirs of Pablo Feliciano, Jr. vs. Land Bank of the Philippines, 803 Phil. 253 (2017) — Cited for the rule that R.A. No. 9700 does not apply to claims where the claim folders were received by LBP prior to July 1, 2009, establishing that Section 17 of R.A. No. 6657 as originally worded governs this case.

• LBP vs. Pacita Agricultural Multi-Purpose Coop., etc., G.R. No. 177607, January 19, 2009 — Cited (by the SAC) for the proposition that it is more equitable for the SAC to determine just compensation using the valuation at the time of payment, considering the full and fair equivalent of the property taken.

• Section 17, R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) — Prescribes the valuation factors for determining just compensation: cost of acquisition, current value of like properties, nature, actual use and income, sworn valuation by the owner, tax declarations, and assessment by government assessors, with social and economic benefits and non-payment of taxes or loans as additional factors. The Court held that the SAC was mandated to consider these factors but failed to do so.

• Section 57, R.A. No. 6657 — Expressly grants the RTCs, acting as SACs, original and exclusive jurisdiction over all petitions for the determination of just compensation to landowners.

• DAR Administrative Order No. 5, series of 1998 — Provides the basic formula for land valuation: LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), with alternative formulas when certain factors are absent. The Court held that this formula "fills in the details" of Section 17 and must be considered by the SAC, which failed to apply or justify deviation from it.

• Section 4, Rule 42, Rules of Court — Cited by the CA in its second resolution as basis for dismissing the petition for being patently without merit; the Court implicitly rejected this ground by annulling the CA resolution.

• Section 13, Rule 13, 1997 Rules of Civil Procedure — Cited by the CA regarding proof of service of the petition to the adverse party and the court a quo; the Court treated this as a procedural defect that should not have warranted outright dismissal.

• Section 2, Rule VIII, 2004 Rules on Notarial Practice — Cited by the CA regarding the requirement that the notary public's IBP and PTR receipts be current; treated as a procedural defect subject to the doctrine of liberality.

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