Land Bank of the Philippines vs. Lucy Grace and Elma Gloria Franco

Courts may deviate from the basic formula provided by administrative agencies in determining just compensation, but such deviation must be grounded on a reasoned explanation based on the evidence on record; absent this, the deviation constitutes grave abuse of discretion. The five percent (5%) cash incentive under Section 19 of Republic Act No. 6657, in relation to Section 18, applies only to the cash payment portion of the mode of compensation and does not increase the total amount of just compensation awarded.

Lucy Grace Franco and Elma Gloria Franco were registered owners of agricultural lands in Barangay Maquina, Dumangas, Iloilo, covered by Transfer Certificate of Title Nos. T-62209, T-62210, T-62212, and T-51316. The lands were offered for sale to the Department of Agrarian Reform under the Voluntary Offer to Sell of the Comprehensive Agrarian Reform Program in 1995. The Comprehensive Agrarian Reform Law, Republic Act No. 6657, provides the framework for land acquisition and redistribution, with Section 17 enumerating the factors for determining just compensation and Section 57 vesting original and exclusive jurisdiction over just compensation petitions in Regional Trial Courts sitting as Special Agrarian Courts. The Department of Agrarian Reform Adjudication Board has only preliminary administrative determination of just compensation, which is not final and conclusive upon the landowner.

Lucy Grace Franco and Elma Gloria Franco were the registered owners of parcels of agricultural land in Barangay Maquina, Dumangas, Iloilo, covered by Transfer Certificate of Title Nos. T-62209, T-62210, T-62212, and T-51316. In 1995, the Francos offered the parcels of land for sale to the Department of Agrarian Reform under the Voluntary Offer to Sell of the Comprehensive Agrarian Reform Program. Of the 14.444 hectares of the property, 12.5977 hectares were acquired and distributed to qualified agrarian reform beneficiaries.

During the summary proceedings before the Department of Agrarian Reform, the parcels of land were valued at ₱714,713.78. The Francos did not agree with the initial valuation. Upon a Petition for Review, the Department of Agrarian Reform Adjudication Board raised the amount to ₱739,461.43, which the Francos then withdrew from the Land Bank of the Philippines. Still dissatisfied with the amount, the Francos on August 3, 2000 filed before the Regional Trial Court, sitting as the Special Agrarian Court, a Complaint for the determination of just compensation. Subsequently, they filed an Amended Petition against Land Bank, the Secretary of Agrarian Reform, and other tenant-beneficiaries who were not included in the original Complaint.

In its September 18, 2007 Decision, the Special Agrarian Court fixed the just compensation for the 12.5977 hectares of land area actually taken by the government in the amount of ₱1,024,115.49. It ordered Land Bank to pay the remaining balance of ₱288,115.49 with legal interest at 12% per annum from April 25, 1996 until full payment. Moreover, it held that under Section 19 of Republic Act No. 6657, the Francos were also entitled to an additional five percent (5%) cash payment by way of incentive for voluntarily offering their lots for sale.

The Special Agrarian Court reasoned that the total valuation by the Land Bank and the Department of Agrarian Reform in the amount of ₱739,461.43 was "unrealistically low" and therefore not the just compensation of the subject lot. It found the valuation of the petitioners "cumbersomely high" for the government and the farmer-beneficiaries, considering that the valuation of ₱300,000.00 per hectare they initially asked in 1998 was based only on assumptions of facts unsupported by credible evidence. The Special Agrarian Court took into consideration the factors provided under Section 17 of Republic Act No. 6657, including the price set by the plaintiffs when they first offered the subject land for voluntary acquisition (₱300,000.00 per hectare; Date of Offer — January 30, 1995), and the tax declarations for 1996 of the subject lots. It then took into account the amount arrived at using the mathematical formula provided under Department of Agrarian Reform Administrative Order No. 5, Series of 1998, and the market value of the property as shown in the tax declarations, and averaged these two figures to arrive at the just compensation.

Land Bank filed a Motion for Reconsideration, which was denied by the Special Agrarian Court in a November 14, 2007 Order. Land Bank then filed before the Court of Appeals a Petition for Review under Rule 42 of the Rules of Court, arguing that the Special Agrarian Court's determination of just compensation was inconsistent with Department of Agrarian Reform Administrative Order No. 5, series of 1998. In its January 20, 2011 Decision, the Court of Appeals, citing Heirs of Lorenzo and Carmen Vidad vs. Land Bank of the Philippines, affirmed the ruling of the Special Agrarian Court and held that the determination of just compensation is judicial in nature. The Court of Appeals, however, modified the Special Agrarian Court Decision by deleting the imposition of the 12% legal interest on the outstanding amount, explaining that the delay in the delivery of payment had not been established. Land Bank filed a Motion for Partial Reconsideration, but it was denied by the Court of Appeals in its August 8, 2012 Resolution.

• Deviation from the Basic Formula: Petitioner argued that in determining just compensation, the Special Agrarian Court expanded the basic general formula in Administrative Order No. 5 by taking the average between its valuation and the market value of the properties based on their respective tax declarations, which was contrary to Administrative Order No. 5.
• Judicial Fealty to Administrative Formulas: Petitioner argued that in a long line of cases, this Court "has demonstrated judicial fealty to the applicable formula and guidelines which [the Department of Agrarian Reform] issued through several administrative orders," citing Land Bank of the Philippines vs. Spouses Banal, where the Special Agrarian Court was reminded that "the exercise of judicial discretion in fixing just compensation must be made within the bounds of [Republic Act] No. 6657 and the administrative rules issued by [the Department of Agrarian Reform]."
• Five Percent Cash Incentive: Petitioner posited that the five percent (5%) cash incentive under Section 19 in relation to Section 18 of Republic Act No. 6657 refers to the mode of payment on the cash portion, but not to an additional award of five percent (5%) on top of the full amount of just compensation. It submitted that considering that the properties acquired were below 24 hectares and were voluntarily offered for sale, the landowner, instead of receiving 35% in cash and 65% in agrarian reform bonds, should receive 40% in cash and 60% in agrarian reform bonds as just compensation.

• Original and Exclusive Jurisdiction: Respondents countered that the Special Agrarian Court has original and exclusive jurisdiction over all petitions for the determination of just compensation, emphasizing that this Court has already ruled that determination of just compensation is a judicial prerogative.
• Five Percent Cash Incentive as Additional Award: Respondents asserted that the five percent (5%) cash incentive in Republic Act No. 6657, Section 19 refers to an additional monetary award on the entire amount of just compensation in favor of the landowners who voluntarily offered their lands for sale, arguing that the "cash incentive entices or stimulates landowners to voluntarily sell their lands subject of eminent domain in favor of the government."

• Valuation of Just Compensation: Whether the Court of Appeals erred in affirming the Special Agrarian Court's valuation of just compensation using a variation of the basic general formula provided for in Department of Agrarian Reform Administrative Order No. 5, series of 1998.
• Five Percent Cash Incentive: Whether the five percent (5%) cash incentive under Section 19 of the Comprehensive Agrarian Reform Law refers only to the mode of payment of the cash portion, not to an increase in the total amount of just compensation.

• Valuation of Just Compensation: Yes. The Special Agrarian Court's computation of just compensation resulted in a "double take up" of the market value per tax declaration of the property, a method of valuation already considered in Land Bank vs. Palmares as a departure from the mandate of law and basic administrative guidelines. The deviation from the basic formula was not supported by a reasoned explanation grounded on the evidence on record, and thus constituted grave abuse of discretion.
• Five Percent Cash Incentive: No. The five percent (5%) cash incentive under Section 19, in relation to Section 18 of the Comprehensive Agrarian Reform Law, is not in addition to the amount of just compensation awarded by the courts; the incentive only applies to the cash payment to be awarded.

• Valuation of Just Compensation: The Court reiterated that the determination of just compensation is judicial in nature, citing Export Processing Zone Authority vs. Dulay, which held that "the determination of 'just compensation' in eminent domain cases is a judicial function." The Department of Agrarian Reform's valuation is only preliminary and not conclusive, as the Special Agrarian Court has original and exclusive jurisdiction to make a final determination. However, the Court also emphasized that while courts may deviate from the Department of Agrarian Reform's formulas, such deviation must be grounded on a reasoned explanation based on the evidence on record, as established in Alfonso vs. Land Bank. The Court found that the Special Agrarian Court's method of averaging the value computed under Administrative Order No. 5 with the market value per tax declaration constituted a "double take up" of the market value factor, since the market value per tax declaration was already factored into the basic formula. This method was already condemned in Land Bank vs. Palmares, where the Court held that such double take up "destroyed the affordability of the land to the farmer-beneficiaries." The Court also cited Land Bank vs. Hababag, Sr. for the principle that agricultural lands are acquired not for investment purposes but for redistribution to landless farmers, and that the compensation must be what the farmer-beneficiaries can reasonably afford to pay based on what the land can produce. Accordingly, the Special Agrarian Court's valuation was struck down, and the just compensation was fixed at ₱739,461.43 as computed by the Land Bank and the Department of Agrarian Reform.

• Five Percent Cash Incentive: The Court held that Section 19 must be read in connection with Section 18 of Republic Act No. 6657, applying the elementary principle that a statutory provision must be construed in relation to other parts of the statute. Section 18 provides the modes of compensation, including cash payment with specific percentages depending on the size of the land. For lands twenty-four (24) hectares and below, the landowner receives thirty-five percent (35%) cash, with the balance paid in government financial instruments. Section 19 provides that landowners who voluntarily offer their lands for sale "shall be entitled to an additional five percent (5%) cash payment." The Court reasoned that if the additional five percent (5%) were to be paid on top of the awarded just compensation, then the law would not have put "cash" before "payment" in Section 19, in turn modifying the kind of payment to be given to the owners-sellers. Thus, the landowner shall receive 35% of the just compensation in cash and 65% in bonds for lands below 24 hectares; however, if the landowner voluntarily offers the land, the landowner shall receive 40% in cash and 60% in bonds instead.

• Judicial Determination of Just Compensation — The determination of just compensation in eminent domain cases is a judicial function. The executive department or the legislature may make initial determinations, but when a party claims a violation of the guarantee in the Bill of Rights that private property may not be taken for public use without just compensation, no statute, decree, or executive order can mandate that its own determination shall prevail over the court's findings. The Department of Agrarian Reform's valuation is only preliminary and not conclusive; the Special Agrarian Court has original and exclusive jurisdiction to make a final determination under Section 57 of Republic Act No. 6657.

• Deviation from Administrative Formulas — Courts may deviate from the basic formula provided by administrative agencies in determining just compensation if they find, in their discretion, that other factors must be taken into account. However, such deviation must be grounded on a reasoned explanation based on the evidence on record. Absent this, the deviation will be considered as grave abuse of discretion. A computation by a court made in "utter and blatant disregard of the factors spelled out by law and by the implementing rules" amounts to grave abuse of discretion and must be struck down.

• Double Take Up of Market Value — The Special Agrarian Court's method of averaging the value computed under the Department of Agrarian Reform's basic formula with the market value per tax declaration constitutes a "double take up" of the market value factor, since the market value per tax declaration is already factored into the basic formula as one of its components (MV x 0.1). Such double take up destroys the affordability of the land to the farmer-beneficiaries and is a departure from the mandate of law and basic administrative guidelines.

• Statutory Construction — Reading Provisions in Relation to Other Parts — A statutory provision must be construed in relation to other parts of the statute. Section 19 of Republic Act No. 6657 must be read in connection with Section 18, which provides the modes of compensation. The phrase "cash payment" in Section 19 modifies the kind of payment to be given to the owners-sellers, indicating that the additional five percent (5%) applies only to the cash portion of the mode of payment, not as an increase in the total amount of just compensation.

• "The final determination of just compensation is vested in courts. In the recent case of Alfonso v. Land Bank, this Court, through Associate Justice Francis H. Jardeleza, ruled that courts may deviate from the basic formula provided by administrative agencies if it finds, in its discretion, that other factors must be taken into account in the determination of just compensation. Deviation, however, must be grounded on a reasoned explanation based on the evidence on record. Absent this, the deviation will be considered as grave abuse of discretion." — This passage states the controlling doctrine on the judicial determination of just compensation and the limits on courts' discretion to deviate from administrative formulas.

• "The determination of 'just compensation' in eminent domain cases is a judicial function. The executive department or the legislature may make the initial determinations but when a party claims a violation of the guarantee in the Bill of Rights that private property may not be taken for public use without just compensation, no statute, decree, or executive order can mandate that its own determination shall prevail over the court's findings. Much less can the courts be precluded from looking into the 'just-ness' of the decreed compensation." — This passage, quoted from Export Processing Zone Authority vs. Dulay, articulates the canonical formulation of the judicial nature of just compensation determination.

• "For the guidance of the bench, the bar, and the public, we reiterate the rule: 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 passage, quoted from Alfonso vs. Land Bank, establishes the standard for when courts may deviate from the Department of Agrarian Reform's formulas in determining just compensation.

• "If, as respondents have argued, the additional five percent (5%) is indeed to be paid on top of the awarded just compensation for the property, then the law would not have put 'cash' before 'payment' in Section 19, in turn modifying the kind of payment to be given to the owners-sellers." — This passage explains the Court's reasoning for interpreting the five percent (5%) cash incentive under Section 19 as applying only to the cash portion of the mode of payment, not as an additional award on top of just compensation.

• Alfonso vs. Land Bank of the Philippines, 801 Phil. 217 (2016) — Controlling precedent establishing that courts may deviate from the Department of Agrarian Reform's formulas in determining just compensation, provided the deviation is supported by a reasoned explanation grounded on the evidence on record.
• Export Processing Zone Authority vs. Dulay, 233 Phil. 313 (1987) — Controlling precedent holding that the determination of just compensation in eminent domain cases is a judicial function that cannot be usurped by the executive department or the legislature.
• Heirs of Lorenzo and Carmen Vidad vs. Land Bank of the Philippines, 634 Phil. 9 (2010) — Followed for the principle that the Land Bank's valuation of lands covered by the Comprehensive Agrarian Reform Law is only an initial determination, not conclusive, and that the Regional Trial Court sitting as Special Agrarian Court makes the final determination of just compensation.
• Land Bank of the Philippines vs. Montalvan, 689 Phil. 641 (2012) — Followed for the ruling that the original and exclusive jurisdiction of the Special Agrarian Court under Section 57 of Republic Act No. 6657 would be undermined if the Department of Agrarian Reform vested original jurisdiction in administrative officials and made the Regional Trial Court an appellate court.
• Land Bank of the Philippines vs. Palmares, 711 Phil. 336 (2013) — Followed for the principle that averaging the price of land as computed based on Department of Agrarian Reform guidelines and the market value per tax declaration constitutes a "double take up" of the market value factor, which destroys the affordability of the land to the farmer-beneficiaries.
• Land Bank of the Philippines vs. Hababag, Sr., 769 Phil. 687 (2015) — Followed for the principle that agricultural lands are acquired not for investment purposes but for redistribution to landless farmers, and that the compensation must be what the farmer-beneficiaries can reasonably afford to pay based on what the land can produce.
• Land Bank of the Philippines vs. Yatco Agricultural Enterprises, 724 Phil. 276 (2014) — Followed for the principle that special agrarian courts are not strictly bound to apply the Department of Agrarian Reform formula to its minute detail but may relax its application to fit the factual situations before them.
• Land Bank of the Philippines vs. Spouses Banal, 478 Phil. 701 (2004) — Cited by petitioner for the principle that the exercise of judicial discretion in fixing just compensation must be made within the bounds of Republic Act No. 6657 and the administrative rules issued by the Department of Agrarian Reform.
• Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 256 Phil. 777 (1989) — Cited for the outline of laws enacted to ensure the State's policy toward agrarian reform and for the definition of just compensation as "the full and fair equivalent of the property taken from its owner by the expropriator."
• Apo Fruits Corporation and Hijo Plantation, Inc. vs. The Honorable Court of Appeals and Land Bank of the Philippines, 543 Phil. 497 (2007) — Followed for the principle that it is not adequate to merely use the formula in an administrative order of the Department of Agrarian Reform or rely on the determination of a land assessor to show a final determination of the amount of just compensation.
• Land Bank of the Philippines vs. Obias, 684 Phil. 296 (2012) — Followed for the principle that administrative issuances or orders are subject to interpretation by the Supreme Court and must be interpreted in harmony with the law that authorized them.
• Nacar vs. Gallery Frames, 716 Phil. 267 (2013) — Cited as the basis for the imposition of legal interest of twelve percent (12%) from the time of taking until June 30, 2013, and legal interest of six percent (6%) from July 1, 2013 until full satisfaction.

• Section 17, Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Enumerates the factors to be considered in determining just compensation: the cost of acquisition of the land, the current value of like properties, its nature, actual use and income, the sworn valuation by the owner, the tax declarations, and the assessment made by government assessors, as well as social and economic benefits contributed by farmers and farmworkers and by the government, and the non-payment of taxes or loans secured from any government financing institution. The Court held that this provision provides guideposts for ascertaining the value of properties and does not preclude courts from considering other factors.
• Section 18, Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Provides the valuation and mode of compensation, including the specific percentages of cash payment depending on the size of the land: 25% cash for lands above fifty hectares, 30% cash for lands above twenty-four hectares and up to fifty hectares, and 35% cash for lands twenty-four hectares and below, with the balance paid in government financial instruments. The Court read Section 19 in connection with this provision to determine the meaning of the five percent (5%) cash incentive.
• Section 19, Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Provides that landowners, other than banks and other financial institutions, who voluntarily offer their lands for sale shall be entitled to an additional five percent (5%) cash payment. The Court held that this incentive applies only to the cash portion of the mode of payment, not as an increase in the total amount of just compensation.
• Section 57, Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Vests Special Agrarian Courts with original and exclusive jurisdiction over all petitions for the determination of just compensation to landowners. The Court held that this jurisdiction is not diminished by the Department of Agrarian Reform's preliminary administrative determination.
• Section 16(f), Republic Act No. 6657 (Comprehensive Agrarian Reform Law) — Provides that any party who disagrees with the Department of Agrarian Reform's decision may bring the matter to the court of proper jurisdiction for final determination of just compensation. The Court held that the use of the word "final" makes clear that Special Agrarian Courts are vested with jurisdiction to make a final and binding determination.
• Article XIII, Section 4, 1987 Constitution — Provides that the State shall, by law, 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 as the constitutional foundation of the agrarian reform program.
• Article XIII, Section 8, 1987 Constitution — Provides that the State shall provide incentives to landowners to invest the proceeds of the agrarian reform program to promote industrialization, employment creation, and privatization of public sector enterprises. The Court cited this provision in discussing the modes of payment under the Comprehensive Agrarian Reform Law.
• Department of Agrarian Reform Administrative Order No. 5, Series of 1998 — Provides the basic formula for the valuation of lands covered by Voluntary Offer to Sell or Compulsory Acquisition: LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1), where LV is Land Value, CNI is Capitalized Net Income, CS is Comparable Sales, and MV is Market Value per Tax Declaration. The Court held that while this formula requires due consideration, the determination of just compensation shall still be subject to the final decision of the Special Agrarian Court.

Bersamin (C.J.), Carpio, Peralta, Del Castillo, Perlas-Bernabe, Jardeleza, Caguioa, A. Reyes, Jr., Gesmundo, J. Reyes, Jr., Hernando, Carandang, and Lazaro-Javier, JJ., concurred.