Mercado vs. Land Bank of the Philippines

The determination of just compensation in eminent domain is a judicial function vested in the RTC acting as SAC, which must be guided by the factors under Section 17 of RA 6657 and the formula under DAR A.O. No. 5; however, the RTC may relax the application of the formula if warranted by circumstances, provided it clearly explains the reasons for such deviation.

Petitioners Spouses Nilo and Erlinda Mercado owned 9.8940 hectares of agricultural land in Kilate, Toril, Davao City covered by Transfer Certificate of Title No. T-44107. The Land Bank of the Philippines (LBP), as financial intermediary for the Comprehensive Agrarian Reform Program (CARP), sought to acquire 5.2624 hectares of the property for distribution to farmer-beneficiaries. The Provincial Agrarian Reform Office (PARO) offered petitioners P287,227.16 (approximately P5.40 per square meter) as just compensation based on the DAR A.O. No. 5 formula. Petitioners rejected this valuation, claiming the fair market value was P250,000.00 per hectare (approximately P25.00 per square meter), citing that they had previously sold the remaining 4.6316 hectares of their property (which was hilly and less productive) for that price, and that the subject portion was flat, cultivated with crops, and adjacent to an eco-tourism area.

• Petitioners Spouses Nilo and Erlinda Mercado were registered owners of 9.8940 hectares of agricultural land in Kilate, Toril, Davao City covered by TCT No. T-44107.
• Respondent Land Bank of the Philippines (LBP) is the financial intermediary for the Comprehensive Agrarian Reform Program (CARP) under Republic Act No. 3844.
• On October 27, 2002, petitioner Nilo Mercado rejected LBP's offer of P287,227.16 (approximately P5.40 per square meter) for 5.2624 hectares of the property placed under CARP coverage.
• Petitioners claimed the fair market value was P250,000.00 per hectare, citing their sale of the remaining 4.6316 hectares (described as hilly and uncultivated) at that price, and noting the subject portion was flat, cultivated with coconut, mango, banana and coffee, and adjacent to the "Eden" eco-tourism area.
• The Regional Agrarian Reform Adjudicator (RARAD) sustained LBP's valuation in a Resolution dated June 9, 2003.
• The DARAB held in an Order dated September 5, 2003 that land valuation decisions must be brought directly to the Special Agrarian Court (SAC), not appealed to DARAB.
• Petitioners filed a Complaint before the RTC of Davao City, Branch 15 on May 21, 2004, praying for P250,000.00 per hectare as just compensation and P200,000.00 as rentals from farmer-beneficiaries.
• Evidence for petitioners included testimony from BIR Revenue Officer Perla M. Borja that the zonal value was P40.00 per square meter as of December 22, 2002; testimony from Apo Land Corporation Records Custodian James Paul Enriquez regarding lease contracts; and testimony from Nilo Mercado regarding improvements and the 2001 sale of the adjacent portion for P1,020,000.00 (approximately P25.00 per square meter).
• Evidence for respondent included testimony from Agrarian Affairs Specialist Engr. Marilyn Rojo that no comparable sales information was available; and testimony from Property Appraiser Engr. Orlando Arceo who conducted a one-day inspection, counted trees, interviewed one farmer-beneficiary, and applied DAR A.O. No. 5 formula using production data (P9.00 per kilo of copra) to arrive at P5.40 per square meter.
• The RTC appointed commissioners who appraised the property, but their reports were not attached to the records.
• The RTC fixed just compensation at P25.00 per square meter on December 28, 2006, considering the zonal value, topography, accessibility, and the 2001 sale of the adjacent property.
• The Court of Appeals reversed the RTC on April 20, 2011, holding that the RTC failed to show how it arrived at P25.00 per square meter and strictly applied DAR A.O. No. 5 formula to reinstate LBP's valuation.

• The determination of just compensation is a judicial function vested in the RTC acting as SAC, which must make an independent determination and is not bound by administrative agency valuations.
• The RTC properly considered factors under Section 17 of RA 6657 including: (1) zonal value of P40.00 per square meter in 2002; (2) crops planted on the subject portion; (3) location within city limits near an eco-tourism area; and (4) the 2001 sale of the remaining 4.6316 hectares for P1,020,000.00.
• Respondent's valuation was defective as it relied solely on production data gathered during a one-day field investigation where the appraiser merely counted trees and interviewed only one farmer-beneficiary.
• The factors considered by the RTC justify the valuation of P25.00 per square meter as just compensation.

• The Court of Appeals correctly adopted LBP's valuation of P287,227.16 pursuant to the mandatory formula under DAR A.O. No. 5 and Section 17 of RA 6657.
• While judicial discretion is recognized in determining just compensation, such discretion must be exercised within the bounds of law and the DAR formula.
• The RTC erred in not showing how it arrived at P25.00 per square meter and in relying on the alleged sale of the adjacent property without sufficient evidence.
• The factors under Section 17 of RA 6657 translated into the DAR A.O. No. 5 formula are the proper guidelines, not the factors relied upon by the RTC such as zonal values and adjacent property sales without proper documentation.

• Procedural:
  • Whether the Court of Appeals erred in reversing the Regional Trial Court's determination of just compensation and substituting its own valuation based strictly on the DAR A.O. No. 5 formula.
• Substantive Issues:
  • Whether the Regional Trial Court, acting as Special Agrarian Court, may deviate from the valuation formula under DAR A.O. No. 5 and the factors under Section 17 of RA 6657 in determining just compensation.
  • Whether the RTC properly exercised its judicial function in fixing just compensation at P25.00 per square meter.
  • Whether the valuation by the Land Bank of the Philippines, based solely on production data, satisfied the requirements for determining just compensation under Section 17 of RA 6657.

• Procedural: The Supreme Court found that while the Court of Appeals correctly identified the mandatory nature of Section 17 factors and the DAR A.O. No. 5 formula, it erred in adopting LBP's valuation because the data used by LBP was unreliable and unverified, gathered through a one-day inspection where the appraiser merely counted trees and interviewed only one farmer-beneficiary. The Court held that both parties failed to adduce satisfactory evidence of the property's value at the time of taking, making the CA's adoption of LBP's valuation premature.
• Substantive: The Court affirmed that the determination of just compensation is a judicial function vested in the RTC acting as SAC. While the RTC must consider the factors under Section 17 of RA 6657 and the formula under DAR A.O. No. 5, it may deviate from these guidelines if warranted by circumstances, provided it clearly explains the reasons for such deviation. The Court found that the RTC failed to strictly conform with Section 17 guidelines and did not explain how it arrived at P25.00 per square meter using the factors it cited. Similarly, LBP failed to consider all Section 17 factors, relying solely on production. Consequently, the Court reversed the CA decision and remanded the case to the RTC for proper determination of just compensation, directing the RTC to: (1) value the property at the time of taking; (2) award interest as warranted; and (3) follow Section 17 and DAR A.O. No. 5 or clearly explain any deviation.

• Power of Eminent Domain — The inherent power of the State to take private property for public use upon payment of just compensation, which in agrarian reform cases includes taking private agricultural lands for distribution to landless farmers.
• Just Compensation — Defined as the full and fair equivalent of the property expropriated; the return to the owner must be real, substantial, full, and ample, valued at the time of taking when the owner was deprived of the use and benefit of the property.
• Judicial Function in Determining Just Compensation — The determination of just compensation is principally a judicial function of the Regional Trial Court acting as Special Agrarian Court, which has original and exclusive jurisdiction over such determinations, not administrative agencies.
• Mandatory but Flexible Application of DAR Formula — While the RTC must consider the factors under Section 17 of RA 6657 and the valuation formula under DAR A.O. No. 5, it is not strictly bound by the formula if the situations before it do not warrant its application; however, the RTC must clearly explain the reasons for deviating from the factors or formula.

• "In eminent domain, the determination of just compensation is principally a judicial function of the Regional Trial Court (RTC) acting as a Special Agrarian Court (SAC)." — Establishing the judicial nature of the compensation determination function.
• "The term 'just' qualifies the word 'compensation' because the return deserved by the owner of the property must be real, substantial, full and ample." — Defining the standard for just compensation.
• "While the DAR provides a formula, it could not have been its intention to shackle the courts into applying the formula in every instance." — Emphasizing the flexibility allowed to courts in applying valuation formulas.
• "While remand is frowned upon for obviating the speedy dispensation of justice, it becomes necessary to ensure compliance with the law and to give everyone - the landowner, the farmers, and the State - their due." — Justifying the remand of the case for proper determination.

• Land Bank of the Philippines v. Yatco Agricultural Enterprises — Cited for the rule that the RTC acting as SAC has original and exclusive power to determine just compensation, must be guided by Section 17 of RA 6657 and DAR A.O. No. 5, but may relax application of the formula if warranted by circumstances provided the RTC explains its deviation.
• Land Bank of the Philippines v. Peralta — Cited for confirming the mandatory character of guidelines under Section 17 of RA 6657 and restating that valuation factors had been translated into the basic formula under DAR A.O. No. 5.
• Department of Agrarian Reform v. Spouses Diosdado Sta. Romana and Resurreccion O. Ramos — Cited for the holding that the RTC is not strictly bound by the DAR formula if situations do not warrant its application, and the RTC cannot be arbitrarily restricted by the formula.
• Land Bank of the Philippines v. Heirs of Maximo and Gloria Puyat — Cited in Sta. Romana regarding the flexibility of the DAR formula.
• Apo Fruits Corporation v. Land Bank of the Philippines — Cited for definitions of eminent domain and just compensation in the context of agrarian reform.
• National Power Corporation v. Zabala — Cited for the definition of just compensation as the full and fair equivalent of the property taken.
• Land Bank of the Philippines v. Livioco — Cited for the principle that remand is necessary to ensure compliance with the law and give everyone their due.

• Section 17 of Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988) — Enumerates the factors to be considered in determining just compensation: cost of acquisition, current value of like properties, nature, actual use and income, sworn valuation by owner, tax declarations, assessment by government assessors, social and economic benefits contributed by farmers and government, and non-payment of taxes or loans.
• DAR Administrative Order No. 5, Series of 1998 — Provides the valuation formula (LV = [CNI x 0.6] + [CS x 0.3] + [MV x 0.1]) and its variations when certain factors are not present, which translates Section 17 factors into a basic computation method.
• Republic Act No. 3844 (Agricultural Land Reform Code) — The law organizing the Land Bank of the Philippines as the financial intermediary for the agrarian reform program.

• Justice Alfredo Benjamin S. Caguioa (Jardeleza, J.) — Concurred "in the result" (per Special Order No. 2056 dated June 10, 2015, Justice Jardeleza participated).