Land Bank of the Philippines vs. Spouses Cortez

Special Agrarian Courts must apply the DAR formulas and guidelines in determining just compensation and may deviate only with a reasoned explanation grounded on the evidence on record; the applicable DAR administrative order is determined by the date of taking or receipt of the claims folder by LBP, with claims folders received prior to July 1, 2009 governed by Section 17 of R.A. No. 6657 and its implementing issuances, not R.A. No. 9700 and DAR AO No. 1, Series of 2010.

Spouses Lydia and Carlos Cortez owned a coconut land in Daraga, Albay, which they offered for acquisition under the Comprehensive Agrarian Reform Program. Land Bank of the Philippines is the government financial institution tasked with valuing and compensating agrarian reform lands. DAR administrative orders provide the basic formulas for land valuation: AO No. 5, Series of 1998 operationalizes Section 17 of R.A. No. 6657, while AO No. 1, Series of 2010 was issued pursuant to R.A. No. 9700 amendments. The interplay between these issuances—and the cut-off date of July 1, 2009 established by DAR AO No. 2, Series of 2009—determines which formula and reckoning periods apply to a given acquisition.

Spouses Lydia and Carlos Cortez owned a coconut land identified as Lot 181893, Cad. 56, located at Villahermosa, Daraga, Albay, with an area of approximately 16.5415 hectares and covered by TCT No. T-45714. On January 5, 2000, the spouses offered the property for acquisition under the Comprehensive Agrarian Reform Program. In April 2000, DAR issued a notice of coverage, and on April 24, 2000, LBP, together with DAR representatives, conducted a field investigation revealing that only 6.004 hectares of the 16.5415 hectares were fit for acquisition.

On September 26, 2001, DAR issued a Memorandum Request to Value Land addressed to LBP, which received the claims folder on September 27, 2001. On January 15, 2002, the Register of Deeds of Albay partially cancelled the Cortezes' title and issued TCT No. T-127132 in the name of the Republic of the Philippines, represented by the DAR, covering the 6.0004-hectare subject property.

LBP conducted the land valuation using the two-factor formula prescribed under DAR AO No. 5, Series of 1998—LV = (CNI x 0.9) + (MV x 0.1)—given that comparable sales data were unavailable. LBP computed the Annual Gross Production based on the 12-month period preceding the field investigation (April 24, 2000) and the Selling Price based on the 12-month period preceding receipt of the claims folder (September 27, 2001), arriving at a preliminary valuation of P106,542.98 or P17,755.98 per hectare. The spouses refused to accept this amount. LBP deposited the amount in the spouses' names as provisional compensation on December 20, 2001 pursuant to Section 16(e) of R.A. No. 6657.

The matter was elevated to the DARAB, which fixed compensation at P183,273.93. LBP rejected this determination because it did not include the computation or its basis. LBP then filed a Petition for Determination of Just Compensation before the RTC, arguing that its preliminary valuation was in accordance with Section 17 of R.A. No. 6657.

The RTC, acting as a Special Agrarian Court, fixed just compensation at P397,958.41. It used the same two-factor formula under AO No. 5, Series of 1998 but modified the reckoning dates: instead of using the 12-month period preceding the field investigation for AGP and the 12-month period preceding receipt of the claims folder for SP, the RTC adopted June 30, 2009 as the presumptive date of taking under AO No. 1, Series of 2010, and reckoned the production data and selling prices from the 12-month period preceding that date. The RTC reasoned that strictly observing the reckoning periods under AO No. 5 would severely diminish the purchasing power of the compensation due to annual inflation rates, and proposed to "currentize" the bases while doing away with interest. The court-appointed commissioner recomputed the valuation using the same formula but with the modified reckoning dates, arriving at P397,958.41. LBP moved for reconsideration, which the RTC denied on January 11, 2012. LBP elevated the matter to the CA, which affirmed the RTC Decision without discussing the propriety of the modified reckoning dates.

• Applicable DAR Issuance: Petitioner argued that the RTC improperly applied the provisions of AO No. 1, Series of 2010 by adopting the presumptive date of taking of June 30, 2009 prescribed therein, considering that the said issuance covers acquisitions of land under P.D. No. 27 and E.O. No. 228, while the acquisition of the subject property was made under a voluntary offer to sell scheme pursuant to R.A. No. 6657.
• Reckoning Date: Petitioner maintained that the RTC committed grave error in using June 30, 2009 as the presumptive date of taking in reckoning the period to determine the relevant production values and prices.
• Judicial Discretion: Petitioner contended that while the RTC, acting as a Special Agrarian Court, has jurisdiction and discretion to determine just compensation, such authority should not be exercised arbitrarily.
• Interest: Petitioner disputed the imposition of 12% interest, claiming that as early as December 20, 2001, it had already deposited the amount in the name of spouses Cortez as provisional compensation in accordance with Sections 16(e) and 18 of R.A. No. 6657.

• Judicial Discretion in Just Compensation: Whether the RTC committed grave abuse of discretion in deviating from the reckoning dates prescribed under DAR AO No. 5, Series of 1998 by adopting June 30, 2009 as the presumptive date of taking.
• Applicable DAR Administrative Order: Whether DAR AO No. 1, Series of 2010—and its presumptive date of taking of June 30, 2009—applies to the subject property, the claims folder for which was received by LBP on September 27, 2001.
• Imposable Interest: Whether the RTC properly imposed 12% interest and from what date and at what rate the interest should be computed.

• Judicial Discretion in Just Compensation: Yes, the RTC committed grave abuse of discretion. Courts may deviate from DAR formulas only with a reasoned explanation grounded on evidence on record, and the RTC's concern about inflation was not so supported; the proper remedy for diminution of value is the imposition of interest, not deviation from the reckoning dates.
• Applicable DAR Administrative Order: No, AO No. 1, Series of 2010 does not apply. The claims folder was received by LBP on September 27, 2001 and title was transferred on January 15, 2002, both well before the July 1, 2009 cut-off established by DAR AO No. 2, Series of 2009; valuation must therefore be governed by Section 17 of R.A. No. 6657 and AO No. 5, Series of 1998.
• Imposable Interest: The RTC's imposition of 12% interest was modified. Legal interest of 12% per annum applies from the date of taking (January 15, 2002) until June 30, 2013, then 6% per annum from July 1, 2013 until finality of the decision, and 6% per annum thereafter until full payment, computed only on the unpaid balance.

• Judicial Discretion in Just Compensation: While the final determination of just compensation is a judicial function vested in the RTC acting as a Special Agrarian Court, such discretion must be exercised within the metes and bounds of the law, particularly the factors enumerated in Section 17 of R.A. No. 6657 and the applicable DAR issuances. As settled in Alfonso vs. Land Bank of the Philippines, DAR formulas partake of the nature of statutes and enjoy the presumption of legality; courts must consider them and may deviate only when supported by a reasoned explanation grounded on the evidence on record. The RTC's concern regarding the diminution of purchasing power, while reasonable, was not supported by evidence. Mere allegations do not suffice; the landowner must prove why the applicable formula could not be strictly applied. The proper solution to address inflation is the imposition of interest, not departure from the reckoning dates prescribed by the applicable DAR issuance. The RTC's deviation was an "utter and blatant disregard of the factors" laid down in the law and regulations, amounting to grave abuse of discretion.

• Applicable DAR Administrative Order: The time of taking determines the applicable DAR administrative order. Title to the subject property was transferred to the Republic on January 15, 2002, making that the actual date of taking—prior to the effectivity of R.A. No. 9700 on August 7, 2009 and of AO No. 1, Series of 2010. Section 5 of R.A. No. 9700 provides that all previously acquired lands wherein valuation is subject to challenge shall be completed and finally resolved pursuant to Section 17 of R.A. No. 6657. DAR AO No. 2, Series of 2009 clarified that claims folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of R.A. No. 6657 prior to its amendment. As held in Land Bank of the Philippines vs. Kho, the application of AO No. 1, Series of 2010 is limited to claims folders received on or subsequent to July 1, 2009. Since the claims folder was received on September 27, 2001, the valuation falls squarely under R.A. No. 6657 and AO No. 5, Series of 1998, and the RTC had no basis to apply the presumptive date of taking under AO No. 1, Series of 2010.

• Imposable Interest: Just compensation entails not only the correct determination of the amount but also payment within a reasonable time from taking. Interest is imposed to eradicate the issue of the constant variability of the value of currency over time and to limit the opportunity loss of the owner from non-payment. Pursuant to BSP Monetary Board Circular No. 799, Series of 2013 and recent jurisprudence, legal interest is fixed at 12% per annum from the time of taking (January 15, 2002) until June 30, 2013, and 6% per annum from July 1, 2013 until finality of the decision. Thereafter, the total amount of compensation shall earn 6% per annum from finality until full payment. The award of interest is computed only on the unpaid balance—the difference between the final amount as properly adjudged and the initial provisional deposit made by the government.

• Mandatory Application of DAR Formulas — DAR formulas and guidelines, issued pursuant to the agency's mandate to implement agrarian reform, partake of the nature of statutes and enjoy the presumption of legality. Courts must consider these formulas in determining just compensation and may deviate from strict application only when the specific circumstances warrant such departure and the court provides a reasoned explanation grounded on the evidence on record. The Court applied this doctrine to find that the RTC's deviation—changing the reckoning dates to "currentize" values—was unsupported by evidence and therefore constituted grave abuse of discretion.

• Time of Taking Determines Applicable DAR Issuance (Cut-off Rule) — The applicable DAR administrative order for determining just compensation is determined by the date of taking or receipt of the claims folder by LBP. Claims folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of R.A. No. 6657 prior to its amendment by R.A. No. 9700, and governed by the applicable DAR issuance (e.g., AO No. 5, Series of 1998). AO No. 1, Series of 2010 applies only to claims folders received on or subsequent to July 1, 2009. The Court applied this rule to hold that the RTC erred in using June 30, 2009 as the presumptive date of taking, since the claims folder was received in 2001.

• Interest as Component of Just Compensation — Interest is imposed on the unpaid balance of just compensation to address the constant variability of currency value over time and to limit the opportunity loss of the owner from non-payment. The rate is 12% per annum from the time of taking until June 30, 2013, then 6% per annum from July 1, 2013 until finality of the decision, and 6% per annum thereafter until full payment. Interest is computed only on the unpaid balance—the difference between the final adjudged amount and the provisional deposit.

• "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 of the Philippines, articulates the canonical formulation of the rule on mandatory application of DAR formulas and the conditions for permissible deviation.

• "Consequently, the application of DAR AO 1, series of 2010 should be, thus, limited to those where the claim folders were received on or subsequent to July 1, 2009." — This passage, quoted from Land Bank of the Philippines vs. Kho, establishes the cut-off rule that determines which DAR administrative order governs the valuation of a given property, a rule central to the Court's ruling in this case.

• "The RTC's concern regarding the diminution of purchasing power of just compensation although reasonable is not supported by the evidence on record. Mere allegations would not suffice and the landowner must prove why the applicable formula could not be strictly applied." — This passage defines the evidentiary burden required for a court to justify deviation from DAR formulas, distinguishing a reasonable concern from a legally sufficient ground.

• Alfonso vs. Land Bank of the Philippines, 801 Phil. 217 (2016) — Controlling precedent establishing the rule on mandatory application of DAR formulas with permissible deviation supported by reasoned explanation grounded on evidence. Extensively quoted in the decision as the framework for evaluating the RTC's deviation.
• Land Bank of the Philippines vs. Kho, 787 Phil. 478 (2016) — Controlling precedent establishing the cut-off rule: AO No. 1, Series of 2010 applies only to claims folders received on or subsequent to July 1, 2009. Quoted at length to support the holding that the RTC erred in applying AO No. 1, Series of 2010.
• Land Bank of the Philippines vs. Spouses Banal, 478 Phil. 701 (2004) — Recognized the binding nature and mandatory application of DAR guidelines issued pursuant to its mandate to implement agrarian reform programs.
• Land Bank of the Philippines vs. Franco, G.R. No. 203242, March 12, 2019 — Cited for the proposition that deviation from DAR formulas must be supported by evidence showing the formula's strict application would not yield the fair market value at the time of taking.
• Land Bank of the Philippines vs. Paliza, Sr., G.R. Nos. 236772-73, June 28, 2021 — Upheld the cut-off rule under DAR AO No. 2, Series of 2009 for claims folders received prior to July 1, 2009.

• Section 17, Republic Act No. 6657 — Enumerates the 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, assessment by government assessors, and social and economic benefits contributed by farmers and government. Applied as the statutory framework for valuation, with DAR AO No. 5, Series of 1998 operationalizing its provisions.
• Section 5, Republic Act No. 9700 (amending Section 7 of R.A. No. 6657) — Provides that all previously acquired lands wherein valuation is subject to challenge by landowners shall be completed and finally resolved pursuant to Section 17 of R.A. No. 6657. Applied to confirm that the subject property, taken in 2002, remains governed by the pre-amendment Section 17.
• DAR AO No. 5, Series of 1998 — Prescribes the basic formula for valuation of lands covered by voluntary offer to sell or compulsory acquisition under R.A. No. 6657, including the two-factor formula LV = (CNI x 0.9) + (MV x 0.1) when comparable sales are unavailable, and the reckoning dates for AGP (12 months preceding field investigation) and SP (12 months preceding receipt of claims folder by LBP). Held to be the applicable issuance for the subject property.
• DAR AO No. 1, Series of 2010 — Rules and regulations on valuation involving tenanted rice and corn lands under P.D. No. 27 and E.O. No. 228, prescribing June 30, 2009 as the presumptive date of taking. Held inapplicable to the subject property because the claims folder was received in 2001.
• DAR AO No. 2, Series of 2009 — Implementing rules of R.A. No. 9700, containing the transitory provision that claims folders received by LBP prior to July 1, 2009 shall be valued in accordance with Section 17 of R.A. No. 6657 prior to its amendment. Applied to establish the cut-off date governing the applicable valuation framework.
• BSP Monetary Board Circular No. 799, Series of 2013 — Prescribes the legal interest rates applied in the decision: 12% per annum until June 30, 2013, and 6% per annum thereafter.

Caguioa (Chairperson), Inting, Dimaampao, and Singh, JJ., concurred.