Land Bank of the Philippines vs. Rivera

A 12% per annum legal interest on just compensation is proper from the finality of the decision until its satisfaction, as the delay in payment constitutes a forbearance of money; however, a government-owned and controlled corporation performing a governmental function, such as LBP in agrarian reform proceedings, is exempt from the payment of costs of suit.

Respondents are co-owners of an 18.8704-hectare agricultural land placed under Operation Land Transfer pursuant to Presidential Decree No. 27 in 1972. LBP initially approved payment of ₱265,494.20, inclusive of a 6% increment per DAR Administrative Order No. 13, series of 1994. Claiming the land was irrigated with two cropping seasons and a higher market value of not less than ₱130,000.00 per hectare, respondents instituted an action for determination of just compensation on 1 December 1994, after the effectivity of Republic Act No. 6657.

• Subject Land and Initial Valuation: Respondents co-own an 18.8704-hectare agricultural land under TCT No. T-95690, placed under PD 27 coverage in 1972. LBP approved an initial payment of ₱265,494.20, inclusive of a 6% increment per DAR AO No. 13, series of 1994, but exclusive of advance lease rentals amounting to ₱75,415.88.
• Judicial Claim for Just Compensation: On December 1, 1994, respondents filed Civil Case No. 94-03 before the RTC, claiming the land was irrigated with two cropping seasons yielding an average gross production of 200 cavans per year per hectare, and asserted a fair market value of not less than ₱130,000.00 per hectare or ₱2,668,302.00 for the entire property. LBP countered that the valuation rested solely on DAR and EO 228, and that public funds could only be disbursed per existing laws.
• RTC and CA Computation: The RTC fixed just compensation at ₱1,297,710.63 plus 12% interest per annum from October 7, 2004. On appeal, the CA affirmed the total amount of ₱1,297,710.63 but modified the breakdown and the baseline for the 12% interest. The CA computed the initial land valuation using the EO 228 formula at ₱164,059.26, added 6% compounded interest from 1972 to 1994 (₱591,193.68), and imposed 12% simple interest from 1994 to 2004 (₱706,516.95). The CA ordered LBP to pay ₱823,957.23 (inclusive of interests as of October 6, 2004) plus 12% per annum interest on ₱515,777.57 from October 7, 2004 until fully paid, and awarded costs of suit to respondents.

• Imposition of 12% Interest: LBP argued that it is invalid and unlawful to award a 12% rate of interest per annum notwithstanding the 6% rate of interest per annum compounded annually prescribed under DAR AO No. 13, series of 1994, DAR AO No. 02, series of 2004, and DAR AO No. 06, series of 2008, from November 1994 up to the time of actual payment.
• Liability for Costs of Suit: LBP maintained that it performs a governmental function when disbursing the Agrarian Reform Fund; thus, adjudging it liable for costs of suit is invalid and unlawful.

• Validity of 12% Interest: Respondents relied on the CA’s ruling that the 12% interest was properly imposed because the amount determined had acquired the character of a forbearance of money.
• Award of Costs of Suit: Respondents argued that costs were properly awarded to them as the prevailing party as a matter of course under Section 1, Rule 43 of the Rules of Court, and that the Court has the power to render judgment for costs as justice may require under Section 2, Rule 142.

• Interest Rate: Whether it is valid or lawful to award a 12% rate of interest per annum on just compensation notwithstanding the 6% rate prescribed under DAR AO No. 13, DAR AO No. 02, and DAR AO No. 06.
• Costs of Suit: Whether it is valid or lawful to adjudge LBP, which is performing a governmental function, liable for costs of suit.

• Interest Rate: The 12% per annum interest on just compensation from the finality of the decision until its satisfaction is proper. Unpaid expropriation compensation constitutes an effective forbearance of money, and the imposition of legal interest is necessary to place the owner in as good a position as before the taking occurred, eliminating the issue of constant fluctuation and inflation of currency over time.
• Costs of Suit: The award of costs of suit against LBP was invalid. LBP performs a governmental function in agrarian reform proceedings, falling under the exemption in Rule 142, Section 1 of the Rules of Court that no costs shall be allowed against the Republic of the Philippines unless otherwise provided by law. LBP is not merely a ministerial disbursing arm but is vested with the primary responsibility and discretion in the valuation and determination of compensation for lands under CARP.

• Just Compensation as Forbearance of Money — The delay in paying just compensation constitutes a forbearance of money, entitling the landowner to legal interest (12% at the time of the case) from the time of taking or finality of the decision until actual payment, to place the owner in as good a position as before the taking occurred.
• Exemption of Government from Costs of Suit — Under Rule 142, Section 1 of the Rules of Court, no costs shall be allowed against the Republic of the Philippines unless otherwise provided by law. This exemption extends to government-owned and controlled corporations like LBP when performing governmental functions, such as the valuation and compensation of lands under the Comprehensive Agrarian Reform Program.
• Application of RA 6657 to PD 27 Cases — If just compensation for lands acquired under PD 27 is not settled prior to the passage of RA 6657, the computation should be in accordance with RA 6657, with PD 27 and EO 228 having only suppletory effect. The formula outlined in DAR Administrative Order No. 5, series of 1998 should be applied.

• "The constitutional limitation of 'just compensation' is considered to be the sum equivalent to the market value of the property, broadly described to be 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, if fixed at the time of the actual taking by the government. Thus, if property is taken for public use before compensation is deposited with the court having jurisdiction over the case, the final compensation must include interest on its just value to be computed from the time the property is taken to the time when compensation is actually paid or deposited with the court. In fine, between the taking of the property and the actual payment, legal interests accrue in order to place the owner in a position as good as (but not better than) the position he was in before the taking occurred."
• "It is evident from the afore-quoted jurisprudence that the role of LBP in the CARP is more than just the ministerial duty of keeping and disbursing the Agrarian Reform Funds. As the Court had previously declared, the LBP is primarily responsible for the valuation and determination of compensation for all private lands. It has the discretion to approve or reject the land valuation and just compensation for a private agricultural land placed under the CARP."

• LBP v. Soriano, G.R. Nos. 180772 and 180776, 6 May 2010 — Followed. Held that if just compensation is not settled prior to RA 6657, it should be computed in accordance with RA 6657, with PD 27 and EO 228 having only suppletory effect.
• Republic v. Court of Appeals, 433 Phil. 106 (2002) — Followed. Affirmed the award of 12% interest on just compensation due to the landowner, as the delay in payment constitutes an effective forbearance.
• Sps. Badillo v. Hon. Tayag, 448 Phil. 606 (2003) — Followed. Recognized that government-owned and controlled corporations performing governmental functions are exempt from paying docket fees and costs.
• Heirs of Vidad v. Land Bank of the Philippines, G.R. No. 166461, 30 April 2010 — Followed. Discussed the indispensable role of LBP in CARP, establishing that its function is governmental, not merely ministerial, as it is primarily responsible for valuation and compensation.
• Sharp International Marketing v. Court of Appeals — Followed. Recognized LBP as an essential part of the government sector regarding the payment of compensation in agrarian reform, exercising judgment in the review and evaluation of land valuation.

• Section 17, Republic Act No. 6657 — Provides the parameters for the computation of just compensation. Applied as the principal basis for computation because the complaint was filed after RA 6657 took effect, leaving PD 27 and EO 228 with merely suppletory effect.
• Section 1, Rule 142, Rules of Court — States that costs shall be allowed to the prevailing party as a matter of course but no costs shall be allowed against the Republic of the Philippines unless otherwise provided by law. Applied to exempt LBP from the payment of costs of suit, LBP being an instrumentality performing a governmental function.
• Presidential Decree No. 27 and Executive Order No. 228 — Governed the valuation of rice and corn lands. Applied suppletorily, although the parties did not contest the CA's computation based on the EO 228 formula.

Renato C. Corona (CJ), Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro, Diosdado M. Peralta