THIRD DIVISION

G.R. No. 167809             November 27, 2008

LAND BANK OF THE PHILIPPINES, petitioner,

vs.
JOSEFINA R. DUMLAO, A. FLORENTINO R. DUMLAO, JR., STELLA DUMLAO-ATIENZA, and
NESTOR R. DUMLAO, represented by Attorney-In-Fact, A. Florentino R. Dumlao, Jr.,
respondents.

DECISION

REYES, R.T., J.:

IN determining just compensation for lands covered by the government’s Operation Land
Transfer, which law applies – Presidential Decree (PD) No. 27 1 or Republic Act (RA) No. 66572
known as the Comprehensive Agrarian Reform (CARP) Law?

This and other related questions are brought to the Court via this petition for review on
certiorari3 of the Decision4 of the Court of Appeals (CA) granting each of respondents a five-
hectare retention area and ordering petitioner to pay them One Hundred Nine Thousand Pesos
(P109,000.00) per hectare for the excess of the retained area.

The Facts

Respondents Josefina R. Dumlao, A. Florentino R. Dumlao, Jr., Stella Dumlao-Atienza, and

Nestor R. Dumlao, heirs of the deceased Florentino G. Dumlao, were the co-owners of several
parcels of agricultural land with an aggregate area of 32.2379 hectares situated at Villaverde,
Nueva Vizcaya.

The properties are covered by: (1) Transfer Certificate of Title (TCT) No. T-1180 with an area of
11.33 hectares;5 (2) TCT No. 41508 consisting of 6.2201 hectares;6 (3) TCT No. 41507 with an
area of 4.0001 hectares;7 (4) TCT No. 41506 consisting of 3.9878 hectares;8 (5) TCT No. 41504
consisting of 5.0639 hectares; and (6) TCT No. 41505 with an area of 1.6360 hectares.

The properties were placed under Operation Land Transfer by the Department of Agrarian
Reform (DAR).9 However, the definite time of actual taking was not stated. 10

Pursuant to PD No. 27 and Executive Order (EO) No. 228,11 a preliminary valuation was made by
the DAR on the landholdings covered by TCT Nos. 41504 and T-1180 with a total area of
16.3939 hectares. Finding the valuation to be correct, petitioner bank informed respondents of
the said valuation.12 Payments were then deposited in the name of the landowners.13
Meanwhile, processing of the properties covered by the other four (4) titles, namely, TCT Nos.
41505, 41506, 41507 and 41508, remains pending with the DAR. 14

On July 9, 1995, respondents filed a Complaint15 before the Regional Trial Court (RTC) in Nueva
Vizcaya, Branch 28,16 for determination of just compensation for their properties. It was
claimed, inter alia, that they were not paid their just compensation for the properties despite
issuance of certificates of land transfer to farmer-beneficiaries by the DAR. 17 They prayed for
the appointment of three (3) competent and disinterested commissioners who would
determine and report to the court the just compensation of their landholdings based on their
current fair market value, without prejudice to their retention rights. They also asked for
payment of actual and moral damages, attorney’s fees, and costs of suit.18

In its Answer, the DAR, represented by the Municipal Agrarian Reform Office (MARO) and
Provincial Agrarian Reform Office (PARO), posited that the complaint lacked a cause of action
and that the RTC did not have jurisdiction. Under Section 50 of RA No. 6657, it is the
Department of Agrarian Reform Adjudication Board (DARAB) which is vested with primary and
original jurisdiction over land valuation, while the RTC as a Special Agrarian Court may review
the DARAB’s decision.19

Petitioner, which was impleaded as defendant in the valuation case before the trial court,
likewise filed its Answer, raising a similar line of defense. 20 Petitioner added that while payment
for the properties covered by TCT Nos. T-1180 and T-41504 were already deposited in trust for
respondents, the claimfolders for the remaining four properties is still with the DAR. Thus, the
filing of the complaint against petitioner was premature.

After the termination of pre-trial conference, respondent Atty. A. Florentino Dumlao, Jr.
submitted his affidavit on which he was cross-examined. Following the submission of their
testimonial and documentary evidence, respondents rested their case.

Upon motion of respondents, the RTC, on April 15, 1998, appointed Atty. John D. Balasya, Clerk
of Court, as commissioner. He was mandated to "receive, examine, and ascertain valuation of
the properties."21 Believing that the valuation of the properties is not commensurate to their
true value and, hence, not a "just" compensation, Atty. Balasya stated in his Commissioner’s
Report dated July 21, 1998,22 that:

The evidences submitted by the parties as well as those gathered by the undersigned
show that only two (2) parcels of land were valued under Presidential Decree No. 27.
 The parcels of land are located in Nagbitin, Villaverde, Nueva Vizcaya and per Exhibit
"O," the unirrigated riceland in Nagbitin are considered first class agricultural lands.
Under Tax Ordinance No. 96-45 adopting and authorizing the 1996 Schedule of Fair
Market Values for the Different Classes of Real Property in Nueva Vizcaya (Exhibit "G"
and Exhibit "G-1") the market value of first class unirrigated Riceland in the Municipality
of Villaverde is P109,000.00 Per Department Order No. 56-97 dated May 27, 1997 issued
by the Department of Finance, Re: Implementation of the Revised Zonal Values of Real
Properties in all Municipalities under the jurisdiction of Revenue District Office No. 14
(Bayombong, Nueva Vizcaya), Revenue Region No. 3, Tuguegarao, Cagayan for Internal
Revenue Tax purposes, the zonal value of land in other Barangays in Villaverde is
P60.00/square meter.

In summary, the undersigned believes that the valuation of respondents Land Bank of
the Philippines and the Department of Agrarian Reform is not commensurate to the
definition of just compensation x x x.23

RTC Ruling

On October 14, 1998, the RTC issued a decision,24 the fallo of which reads:

WHEREFORE, the Court hereby orders the remand of the case with respect to TCT Nos.
1180 and T-41504 to the proper DAR agency for further proceedings and orders the
dismissal of the case with respect to TCT Nos. T-41508, T-41507, T-41506, and T-41505
for having been prematurely filed, there being no preliminary valuation made yet on the
said parcels of land. No pronouncement as to costs.

SO ORDERED.25

Respondents moved for reconsideration. Consequently, on December 21, 1998, the trial court
modified26 its decision in the following manner:

WHEREFORE, premises considered, in the higher interest of justice, the Court MODIFIES
its October 14, 1998 decision by ordering plaintiffs to adduce additional evidence to
support their contentions under PD 27/EO 228 within 30 days from receipt of this Order
furnishing a copy thereof to the defendants who are given 15 days from receipt to
comment thereon. Thereafter, the matter shall be deemed submitted for resolution.

SO ORDERED.27
Instead of adducing additional evidence, respondents filed a motion for reconsideration of the
trial court’s December 21, 1998 order. Positing that the additional evidence required by the
court pertains to the formula under PD No. 27, respondents insisted on P109,000.00 per
hectare, the market value of the properties, as just compensation. 28 Accordingly, the trial court,
on March 18, 1999, issued another order,29 the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby sets the just compensation in the
amount of P6,912.50 per hectare for lot covered by TCT No. T-1180 and the amount
provided for in the Land Valuation Summary and Farmers Undertaking for lot covered by
TCT No. T-41504 to be paid to the plaintiffs with interest from the time of the taking
until fully paid.

SO ORDERED.30

CA Disposition

Dissatisfied with the March 18, 1999 RTC Order, respondents appealed to the CA. On February
16, 2005, the CA rendered a decision31 modifying the trial court’s ruling, viz.:

WHEREFORE, in view of the foregoing, the trial court’s decision is hereby MODIFIED. The
plaintiffs-appellants’ right of retention is recognized. Plaintiffs-appellants Josefina, A.
Florentino, Jr. and Stella, all surnamed Dumlao are each entitled to retain five (5)
hectares pursuant to the provisions of R.A. 6657.

The excess in area after application of the right of retention is valued at One Hundred
Nine Thousand (P109,000.00) Pesos per hectare with interest at the prevailing rate from
the time of taking until fully paid.

No costs.

SO ORDERED.32

The CA declared that the definite time of the actual taking of the subject properties is not
certain.33 Further, there is no doubt that the transfer of the subject landholdings is governed by
PD No. 27.34 However, after the passage of RA No. 6657, the formula relative to valuation under
PD No. 27 no longer applies.35 The appellate court held:

The trial court, therefore, in the determination of just compensation is not confined
within the valuation provisions of P.D. 27. It can depart from it so long as the valuation
assigned on the land transferred is within the meaning of the phrase "just
 compensation" provided for in J.M. Tuazon Co. vs. Land Tenure Administration (31 SCRA
413).36

Relying on the Commissioner’s Report, the CA assigned the lower value of P109,000.00 per
hectare as just compensation for the subject properties.37

Issues

Petitioner bank has resorted to the present recourse, imputing to the CA the following errors:

A.

WHEN THE CHALLENGED DECISION ADHERED TO THE COMMISSIONER’S REPORT AND

FIXED THE VALUE OF THE LANDHOLDINGS AT P109,000.00 PER HECTARE WITH INTEREST
AT THE PREVAILING RATE FROM THE TIME OF TAKING UNTIL FULLY PAID, WORKING A
MODIFICATION OF THE LEGALLY PRESCRIBED BASIC FORMULA FOR DETERMINING THE
JUST COMPENSATION OF LANDS ACQUIRED THROUGH OPERATION LAND TRANSFER
(OLT), CONTRARY TO THE CLEAR MANDATE OF PD 27/EO 228.

B.

WHEN THE CHALLENGED DECISION DECLARED THAT OCTOBER 21, 1972 CANNOT BE
DEEMED AS THE DATE OF TAKING OF THE SUBJECT PROPERTIES.

C.

WHEN THE CHALLENGED DECISION DECLARED THAT RESPONDENTS’ ENTIRE

LANDHOLDINGS ARE COVERED BY PD 27 AND THAT RESPONDENTS JOSEFINA, A.
FLORENTINO, JR., AND STELLA ARE ENTITLED TO RETAIN FIVE (5) HECTARES EACH.38
(Underscoring supplied)

Our Ruling

The just compensation due to respondents should be determined under the provisions of RA
No. 6657.

Petitioner asserts that since the properties were acquired pursuant to PD No. 27, the formula
for computing just compensation provided by said decree and EO No. 228 should apply.
Respondents, on the other hand, insist on the application of RA No. 6657 with respect to the
computation.
Petitioner is mistaken. The 1987 Constitution, specifically Article XIII on Social Justice and
Human Rights, mandates the State’s adoption of an agrarian reform program for the benefit of
the common people.39 The recognition of the need for genuine land reform, however, started
earlier. PD No. 27, issued on October 21, 1972, more than a decade before the enactment of
the 1987 Constitution, provided for the compulsory acquisition of private lands for distribution
among tenant-farmers and specified the maximum retention limits for landowners. 40

The agrarian reform thrust was further energized with the enactment of EO No. 228 on July 17,
1987, when full land ownership was declared in favor of the beneficiaries of PD No. 27. The
executive issuance also provided for the valuation of still unvalued covered lands, as well as the
manner of their payment. On July 22, 1987, Presidential Proclamation No. 131, instituting a
comprehensive agrarian reform program, as well as EO No. 229 41 providing the mechanics for
its implementation, were likewise enacted.42

When the Philippine Congress was formally reorganized, RA No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law of 1988, was immediately enacted. It was signed by
President Corazon Aquino on June 10, 1988. This law, while considerably changing the earlier
presidential issuances, including PD No. 27 and EO No. 228, nevertheless gave them suppletory
effect insofar as they are not inconsistent with its provisions. 43

On one hand, PD No. 27 provides the formula to be used in arriving at the exact total cost of the
acquired lands:44

For the purpose of determining the cost of the land to be transferred to the tenant-
farmer pursuant to this Decree, the value of the land shall be equivalent to two and
one half (2-1/2) times the average harvest of three normal crop years immediately
preceding the promulgation of this Decree.

The total cost of the land, including interest at the rate of six (6) per centum per annum,
shall be paid by the tenant in fifteen (15) years of fifteen (15) equal annual
amortizations. (Emphasis supplied)

Implementing the formula under PD No. 27, EO No. 228 states:

SECTION 2. Henceforth, the valuation of rice and corn lands covered by P.D. No. 27 shall
be based on the average gross production determined by the Barangay Committee on
Land Production in accordance with Department Memorandum Circular No. 26, series of
1973 and related issuances and regulation of the Department of Agrarian Reform. The
average gross production per hectare shall be multiplied by two and a half (2.5), the
 product of which shall be multiplied by Thirty-Five Pesos (P35.00), the government
support price for one cavan of 50 kilos of palay on October 21, 1972, or Thirty-One
Pesos (P31.00), the government support price for one cavan of 50 kilos of corn on
October 21, 1972, and the amount arrived at shall be the value of the rice and corn
land, as the case may be, for the purpose of determining its cost to the farmer and
compensation to the landowner. (Emphasis supplied)

Thus, under PD No. 27 and EO No. 228, the formula for computing the Land Value (LV) or Price
Per Hectare (PPH) of rice and corn lands is:

2.5 x AGP45 x GSP46 = LV or PPH

The parameters of PD No. 27 and EO No. 228 are manifestly different from the guidelines
provided by RA No. 6657 for determining just compensation. Section 17 of RA No. 6657 is
explicit:

Sec. 17. Determination of Just Compensation. – In determining just compensation, the

cost of acquisition of the land, the current value of the like properties, its nature, actual
use and income, the sworn valuation by the owner, the tax declarations, and the
assessment made by government assessors shall be considered. The social and
economic benefits contributed by the farmers and the farmworkers and by the
Government to the property as well as the non-payment of taxes or loans secured from
any government financing institution on the said land shall be considered as additional
factors to determine its valuation.

Due to the divergent formulae or guidelines presented by these laws, a number of cases have
already been brought to the Court regarding which law applies in computing just compensation
for landholdings acquired under PD No. 27. On this score, the Court has repeatedly held that if
just compensation was not settled prior to the passage of RA No. 6657, it should be computed
in accordance with said law, although the property was acquired under PD No. 27.

In the recent Land Bank of the Philippines v. Heirs of Angel T. Domingo,47 We rejected the DAR’s
valuation of just compensation based on the formula provided by PD No. 27 and EO No. 228.
We held then that Section 17 of RA No. 6657 is applicable. The latter law, being the latest law in
agrarian reform, should control.

When RA 6657 was enacted into law in 1988, the agrarian reform process in the present
case was still incomplete as the amount of just compensation to be paid to Domingo
 had yet to be settled. Just compensation should therefore be determined and the
expropriation process concluded under RA 6657.

Guided by this precept, just compensation for purposes of agrarian reform under PD
27 should adhere to Section 17 of RA 6657 x x x.

In Land Bank of the Philippines v. Estanislao,48 the Court ruled that taking into account the
passage of RA No. 6657 in 1988 pending the settlement of just compensation, it is that law
which applies to landholdings seized under PD No. 27, with said decree and EO No. 288 having
only suppletory effect. Prior to that declaration, the Court already decreed in Land Bank of the
Philippines v. Natividad,49 citing Paris v. Alfeche,50 that:

Under the factual circumstances of this case, the agrarian reform process is still
incomplete as the just compensation to be paid private respondents has yet to be
settled. Considering the passage of Republic Act No. 6657 (6657) before the completion
of the process, the just compensation should be determined and the process concluded
under the said law. Indeed, RA 6657 is the applicable law, with PD 27 and EO 228 having
only suppletory effect, conformably with our ruling in Paris v. Alfeche. 51

Agrarian reform is a revolutionary kind of expropriation. 52 The recognized rule in expropriation

is that title to the expropriated property shall pass from the owner to the expropriator only
upon full payment of the just compensation.53 Thus, payment of just compensation to the
landowner is indispensable.

In fact, Section 4, Article XIII of the 1987 Constitution mandates that the redistribution of
agricultural lands shall be subject to the payment of just compensation. The deliberations of the
1986 Constitutional Commission on this subject reveal that just compensation should not do
violence to the Bill of Rights but should also not make an insurmountable obstacle to a
successful agrarian reform program. Hence, the landowner’s right to just compensation should
be balanced with agrarian reform.54

In the case under review, the agrarian reform process was not completed. The just
compensation to be paid respondents was not settled prior to the enactment of RA No. 6657,
the law subsequent to PD No. 27 and EO No. 228. In fact, the non-payment of just
compensation is precisely the reason why respondents filed a petition for the determination of
just compensation before the RTC on July 13, 1995.

The records do not show when respondents or their father, Florentino Dumlao, was formally
notified of the expropriation. The records, however, bear out that the bank sent Florentino
Dumlao a letter stating that it had approved the land transfer claim involving that property
covered by TCT No. T-1180 on November 5, 1990. Moreover, the various Land Valuation
Summary and Farmers Undertakings showing the valuation of the land transferred to the
farmers-beneficiaries were approved on May 17, 1989 55 and July 21, 1989.56 It is thus crystal
clear that even after the passage of RA No. 6657 in 1988, neither petitioner nor the DAR had
settled the matter of just compensation with respondents as landowners.

Besides, RA No. 6657 applies to rice and corn lands covered by PD No. 27. In Paris v. Alfeche,57
the Court explained:

Considering the passage of RA 6657 before the completion of the application of the
agrarian reform process to the subject lands, the same should now be completed under
the said law, with PD 27 and EO 228 having only suppletory effect. This ruling finds
support in Land Bank of the Philippines v. CA, wherein the Court stated:

"We cannot see why Sec. 18 of RA 6657 should not apply to rice and corn lands
under PD 27. Section 75 of RA 6657 clearly states that the provisions of PD 27
and EO 228 shall only have a suppletory effect. Section 7 of the Act also provides
–

Sec. 7. Priorities. – The DAR, in coordination with the PARC shall plan and
program the acquisition and distribution of all agricultural lands through
a period of ten (10) years from the effectivity of this Act. Lands shall be
acquired and distributed as follows:

Phase One: Rice and Corn lands under P.D. 27; all idle or abandoned
lands; all private lands voluntarily offered by the owners for agrarian
reform; x x x and all other lands owned by the government devoted to or
suitable for agriculture, which shall be acquired and distributed
immediately upon the effectivity of this Act, with the implementation to
be completed within a period of not more than four (4) years.

This eloquently demonstrates that RA 6657 includes PD 27 lands among the

properties which the DAR shall acquire and distribute to the landless. And to
facilitate the acquisition and distribution thereof, Secs. 16, 17, and 18 of the
Act should be adhered to. In Association of Small Landowners of the Philippines
v. Secretary of Agrarian Reform, this Court applied the provisions (of) RA 6657 to
rice and corn lands when it upheld the constitutionality of the payment of just
 compensation for PD 27 lands through the different modes stated in Sec. 18."
(Emphasis supplied)

Verily, there is nothing to prevent Section 17 of RA No. 6657 from being applied to determine
the just compensation for lands acquired under PD No. 27.

In Natividad,58 the Court ruled that the DAR’s failure to determine the just compensation for a
considerable length of time made it inequitable to follow the guidelines provided by PD No. 27
and EO No. 228. Hence, RA No. 6657 should apply. The same rationale was followed in Meneses
v. Secretary of Agrarian Reform.59 There, the Court noted that despite the lapse of more than
thirty (30) years since the expropriation of the property in 1972, petitioners had yet to benefit
from it, while the farmer-beneficiaries were already harvesting the property’s produce. Thus,
RA No. 6657 was applied instead of PD No. 27 in determining just compensation.

In Meneses, the Court compared the conflicting rulings in Gabatin v. Land Bank of the
Philippines,60 cited by petitioner, and Land Bank of the Philippines v. Natividad.61 This Court
affirmed Natividad, stating that it would be more equitable to apply the same due to the
circumstances obtaining, i.e. the more than 30-year delay in the payment of just compensation.

The application of RA No. 6657 due to the inequity faced by landowners continued in Lubrica v.
Land Bank of the Philippines.62 The landowners were also deprived of their properties in 1972
but had yet to receive their just compensation even after the passage of RA No. 6657. Since the
landholdings were already subdivided and distributed to the farmer-beneficiaries, the Court,
speaking through Justice Consuelo Ynares-Santiago, deemed it unreasonable to compute just
compensation using the values at the time of taking in 1972 as dictated by PD No. 27, and not
at the time of payment pursuant to RA No. 6657.

We find no cogent reason not to apply the same ratiocination here. In the case at bar,
emancipation patents, and eventually, transfer certificates of title, were issued to the farmer-
beneficiaries63 at least twenty-eight (28) years ago. On March 16, 1990, the DAR acknowledged
that the property covered by TCT No. T-1180 had already been distributed to farmer-
beneficiaries through emancipation patents. As early as June 10, 1975, a portion of the same
property was conveyed to a certain Rosalina Abon, although this was not annotated on the
owner’s title.64

Needless to say, respondents have already been deprived of the use and dominion over their
landholdings for a substantial period of time. In the interim, petitioner bank has abjectly failed
to pay, much less to determine, the just compensation due to respondents. The law clearly
recognizes that the exact value of lands taken under PD No. 27, or the just compensation to be
given to the landowner must be determined with certainty before the land titles are
transferred.65 Petitioner’s gross failure to compensate respondents for loss of their land, while
transferring the same to the farmer-beneficiaries, make it unjust to determine just
compensation based on the guidelines provided by PD No. 27 and EO No. 228.

Accordingly, just compensation should be computed in accordance with RA No. 6657 in order to
give full effect to the principle that the recompense due to the landowner should be the full
and fair equivalent of the property taken from the owner by the expropriator. The measure is
not the taker’s gain but the owner’s loss. The word "just" is used to intensify the meaning of the
word "compensation" to convey the idea that the equivalent to be rendered for the property to
be taken shall be real, substantial, full, and ample.66

The determination of just compensation is a function addressed to the courts of justice and
may not be usurped by any other branch or official of the government.67 However, the
determination made by the trial court, which relied solely on the formula prescribed by PD No.
27 and EO No. 228, is grossly erroneous. The amount of P6,912.50 per hectare, which is based
on the DAR valuation of the properties "at the time of their taking in the 1970s," 68 does not
come close to a full and fair equivalent of the property taken from respondents.

Meanwhile, the CA’s act of setting just compensation in the amount of P109,000.00 would have
been a valid exercise of this judicial function, had it followed the mandatory formula prescribed
by RA No. 6657. However, the appellate court merely chose the lower of two (2) values
specified by the commissioner as basis for determining just compensation, namely: (a)
P109,000.00 per hectare as the market value of first class unirrigated rice land in the
Municipality of Villaverde; and (b) P60.00 per square meter as the zonal value of the land in
other barangays in Villaverde. This is likewise erroneous because it does not adhere to the
formula provided by RA No. 6657.

It cannot be overemphasized that the just compensation to be given to the owner cannot be
assumed and must be determined with certainty.69 Its determination involves the examination
of the following factors specified in Section 17 of RA No. 6657, as amended, namely: (1) the
cost of acquisition of the land; (2) the current value of the properties; (3) its nature, actual use,
and income; (4) the sworn valuation by the owner; (5) the tax declarations; (6) the assessment
made by government assessors; (7) the social and economic benefits contributed by the
farmers and the farmworkers and by the government to the property; and (8) the non-payment
of taxes or loans secured from any government financing institution on the said land, if any. 70
Section 17 was converted into a formula by the DAR through Administrative Order (AO) No. 6,
Series of 1992,71 as amended by AO No. 11, Series of 1994,72 the pertinent portions of which
provide:

A. There shall be one basic formula for the valuation of lands covered by [Voluntary
Offer to Sell] or [Compulsory Acquisition] regardless of the date of offer or coverage of
the claim:

LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)

Where: LV = Land Value

CNI = Capitalized Net Income

CS = Comparable Sales

MV = Market Value per Tax Declaration

The above formula shall be used if all the three factors are present, relevant and
applicable.

A.1 When the CS factor is not present and CNI and MV are applicable, the formula shall
be:

LV = (CNI x 0.9) + (MV x 0.1)

A.2 When the CNI factor is not present, and CS and MV are applicable, the formula shall
be:

LV = (CS x 0.9) + (MV x 0.1)

A.3 When both the CS and CNI are not present and only MV is applicable, the formula
shall be:

LV = MV x 2

In no case shall the value of the land using the formula MV x 2 exceed the lowest value
of land within the same estate under consideration or within the same barangay or
municipality (in that order) approved by LBP within one (1) year from receipt of
claimfolder.
xxxx

A.6 The basic formula in the grossing-up of valuation inputs such as LO’s Offer, Sales
Transaction (ST), Acquisition Cost (AC), Market Value Based on Mortgage (MVM) and
Market Value per Tax Declaration (MV) shall be:

Grossed-up Valuation Input x Regional Consumer

=
Valuation input Price Index (RCPI) Adjustment Factor

The RCPI Adjustment Factor shall refer to the ratio of RCPI for the month issued by the
National Statistics Office as of the date when the claimfolder (CF) was received by LBP
from DAR for processing or, in its absence, the most recent available RCPI for the month
issued prior to the date of receipt of CF from DAR and the RCPI for the month as of the
date/effectivity/registration of the valuation input. Expressed in equation form:

RCPI for the Month as of the Date of

Receipt of Claimfolder by LBP from DAR
or the Most recent RCPI for the Month
RCPI Issued Prior to the Date of RCPI Receipt
Adjustment = of CF
Factor ___________
RCPI for the Month Issued as of the
Date/Effectivity/Registration of the
Valuation Input

B. Capitalized Net Income (CNI) – This shall refer to the difference between the gross
sales (AGP x SP) and total cost of operations (CO) capitalized at 12%.

Expressed in equation form:

CNI = (AGP x SP) – CO

___________
.12

Where: CNI = Capitalized Net Income

AGP = Latest available 12-month's gross production

immediately preceding the date of offer in case
 of VOS or date of notice of coverage in case of
CA.

SP = The average of the latest available 12 month’s

selling prices prior to the date of receipt of the
claimfolder by LBP for processing, such prices to
be secured from the Department of Agriculture
(DA) and other appropriate regulatory bodies
or, in their absence, from the Bureau of
Agricultural Statistics. If possible, SP data shall
be gathered from the barangay or municipality
where the property is located. In the absence
thereof, SP may be secured within the province
or region.

CO = Cost of Operations
Whenever the cost of operations could not be
obtained or verified, an assumed net income
rate (NIR) of 20% shall be used. Landholdings
planted to coconut which are productive at the
time of offer/coverage shall continue to use the
70% NIR. DAR and LBP shall continue to conduct
joint industry studies to establish the applicable
NIR for each crop covered under CARP.

.12 = Capitalization Rate

xxxx

C. CS shall refer to any one or the average of all the applicable sub-factors, namely, ST,
AC and MVM:

Where: ST = Sales Transactions as defined under Item C.2

AC = Acquisition Cost as defined under Item C.3

MVM = Market Value Based on Mortgage as defined

under Item C.4
 xxxx

D. In the computation of Market Value per Tax Declaration (MV), the most recent Tax
Declaration (TD) and Schedule of Unit Market Value (SMV) issued prior to receipt of
claimfolder by LBP shall be considered. The Unit Market Value (UMV) shall be grossed
up from the date of its effectivity up to the date of receipt of claimfolder by LBP from
DAR for processing, in accordance with item II.A.A.6. (Emphasis and underscoring
supplied)

While the determination of just compensation involves the exercise of judicial discretion, such
discretion must be discharged within the bounds of the law. 73 The DAR, as the government
agency principally tasked to implement the agrarian reform program, has the duty to issue rules
and regulations to carry out the object of the law. The DAR administrative orders precisely filled
in the details of Section 17 of RA No. 6657 by providing a basic formula by which the factors
mentioned in the provision may be taken into account.74 Special agrarian courts are not at
liberty to disregard the formula devised to implement the said provision because unless an
administrative order is declared invalid, courts have no option but to apply it. 75

In his Report, the Commissioner merely specified the market value of first class unirrigated
ricelands in the municipality where the properties are located, as well as the zonal value of
lands in other barangays in the same municipality. For their part, respondents attempted to
prove the following: market value of unirrigated ricelands for the Municipality of Villaverde, set
at P109,000.00 per hectare, pursuant to Sangguniang Bayan Tax Ordinance No. 96-45; 76 annual
production of unirrigated ricefields in Villaverde, at 80 cavans during "palagad" cropping, and
101 cavans under regular cropping;77 government support price for palay for the period
October 1, 1990 to October 1995 at P6.00 per kilo, and from November 1, 1995 to the time of
the filing of the petition at P8.00 per kilo.78

However, the records do not bear out if these factors are the only ones relevant, present and
applicable in this case, so that just compensation can now be computed by the Court based on
the formula provided by the DAR administrative orders. Based on the evidence adduced, it
appears that market value and comparable net income (CNI) are being proved. However, CNI
cannot be computed in the absence of information regarding cost of operations. 79

We are thus compelled to remand the case to the court a quo to determine the final valuation
of respondents’ properties. The trial court is mandated to consider the factors provided under
Section 17 of RA No. 6657, as translated into the formula prescribed by DAR AO No. 6-92, as
amended by DAR AO No. 11-94.
Furthermore, upon its own initiative, or at the instance of any of the parties, the RTC may again
appoint one or more commissioners to examine, investigate and ascertain facts relevant to the
dispute including the valuation of properties and to file a written report with the RTC. 80

We next address the second issue – date of taking.

The "taking" of the properties for the purpose of computing just compensation should be
reckoned from the date of issuance of emancipation patents, and not on October 21, 1972, as
petitioner insists. The nature of the land at that time determines the just compensation to be
paid.81

We cannot sustain petitioner’s position that respondents’ properties were statutorily taken on
October 21, 1972, the date of effectivity of PD No. 27; that on that date, respondents were
effectively deprived of possession and dominion over the land; and that when EO No. 228 fixed
the basis in determining land valuation using the government support price of P35.00 for one
cavan of 50 kilos of palay on October 21, 1972, it was consistent with the settled rule that just
compensation is the value of the property at the time of the taking. 82

In Association of Small Landowners v. Secretary of Agrarian Reform,83 the Court held that title to
the property expropriated shall pass from the owner to the expropriator only upon full
payment of just compensation. The Court further held that:

It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as [of]
October 21, 1972 and declared that he shall be deemed the owner of a portion of land
consisting of a family-sized farm except that no title to the land owned by him was to be
actually issued to him unless and until he had become a full-fledged member of a duly
recognized farmer’s cooperative. It was understood, however, that full payment of just
compensation also had to be made first, conformably to the constitutional
requirement.84 (Emphasis supplied)

In Land Bank of the Philippines v. Estanislao,85 the Court declared that seizure of landholdings or
properties covered by PD No. 27 did not take place on October 21, 1972, but upon the payment
of just compensation.

Land Bank’s contention that the property was acquired for purposes of agrarian reform
on October 21, 1972, the time of the effectivity of PD 27, ergo just compensation should
be based on the value of the property as of that time and not at the time of possession
in 1993, is likewise erroneous. In Office of the President, Malacañang, Manila v. Court of
Appeals, we ruled that the seizure of the landholding did not take place on the date of
 effectivity of PD 27 but would take effect on the payment of just compensation.86
(Emphasis in the original)

However, for purposes of computing just compensation, this Court recently declared in Land
Bank of the Philippines v. Heirs of Angel T. Domingo87 that the time of taking should be
reckoned from the issue dates of emancipation patents.

The date of taking of the subject land for purposes of computing just compensation
should be reckoned from the issuance dates of the emancipation patents. An
emancipation patent constitutes the conclusive authority for the issuance of a Transfer
Certificate of Title in the name of the grantee. It is from the issuance of an emancipation
patent that the grantee can acquire the vested right of ownership in the landholding,
subject to the payment of just compensation to the landowner. 88 (Emphasis supplied)

It is undisputed that emancipation patents were issued to the farmer-beneficiaries. However,

their issuance dates are not shown. As such, the trial court should determine the date of
issuance of these emancipation patents in order to ascertain the date of taking and proceed to
compute the just compensation due to respondents, in accordance with RA No. 6657.

Now, to the third and final issue.

Respondents are entitled to payment of just compensation even on those properties which
have not been processed by the DAR.

Petitioner admits that of respondents’ landholdings, only those covered by TCT Nos. T-1180 and
T-41504, totaling 16.3939 hectares, were processed and initially valued by the DAR. Pending
initial processing by the DAR of the remaining landholdings, petitioner posits that it cannot be
made to pay the amount of P109,000.00 per hectare for those covered by TCT Nos. 41508,
41507, 41506, and 41505, with an aggregate area of 17.2379 hectares.

The argument is specious for three reasons.

First, the determination of just compensation is judicial in nature. The DAR’s land valuation is
only preliminary and is not, by any means, final and conclusive upon the landowner or any
other interested party. In the exercise of its functions, the courts still have the final say on what
the amount of just compensation will be.89

In Natividad, the Court held that:

 [T]here is nothing contradictory between the DAR’s primary jurisdiction to determine
and adjudicate agrarian reform matters and exclusive original jurisdiction over all
matters involving the implementation of agrarian reform, which includes the
determination of questions of just compensation, and the original and exclusive
jurisdiction of regional trial courts over all petitions for the determination of just
compensation. The first refers to administrative proceedings, while the second refers to
judicial proceedings.

In accordance with settled principles of administrative law, primary jurisdiction is vested

in the DAR to determine in a preliminary manner the just compensation for the lands
taken under the agrarian reform program, but such determination is subject to
challenge before the courts. The resolution of just compensation cases for the taking of
lands under agrarian reform is, after all, essentially a judicial function.

Thus, the trial court did not err in taking cognizance of the case as the determination of
just compensation is a function addressed to the courts of justice.90 (Emphasis supplied)

In fact, the law does not make the DAR valuation absolutely binding as the amount payable by
petitioner. A reading of Section 1891 of RA No. 6657 shows that it is the courts, not the DAR,
which make the final determination of just compensation.

Accordingly, RA No. 6657 directs petitioner to pay the DAR’s land valuation only if the
landowner, the DAR and petitioner agree on the amount of just compensation. Otherwise, the
amount determined by the special agrarian court as just compensation shall be paid by
petitioner. Corollarily, there is no reason for petitioner to wait for the DAR valuation of the
properties, if the court has already determined the just compensation due to respondents.

Second, to wait for the DAR valuation despite its unreasonable neglect and delay in processing
the four properties’ claimfolders is to violate the elementary rule that payment of just
compensation must be within a reasonable period from the taking of property. Cosculluela v.
Court of Appeals92 could not have been clearer:

Just compensation means not only the correct determination of the amount to be paid
to the owner of the land but also the payment of the land within a reasonable time
from its taking. Without prompt payment, compensation cannot be considered "just"
for the property owner is made to suffer the consequence of being immediately
deprived of his land while being made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss. x x x. 93 (Emphasis supplied)
In the case at bar, the properties have long been expropriated by the government and their
fruits enjoyed by the farmer-beneficiaries. Respondent have been made to wait for decades for
payment of their recompense. They were not even allowed to withdraw the amount claimed to
have been deposited with petitioner bank on their behalf. It would certainly be iniquitous to
wait for the DAR to process the properties covered by the four other titles before the special
agrarian court can finally determine the amount of their just compensation. 94

Third, while the DAR is vested with primary jurisdiction to determine in a preliminary manner
the amount of just compensation, the circumstances of this case militate against the application
of the doctrine of primary jurisdiction.

The principle of exhaustion of administrative remedies is a relative one and is flexible

depending on the peculiarity and uniqueness of the factual and circumstantial settings of a
case. It is disregarded: (1) when there is a violation of due process; (2) when the issue involved
is purely a legal question; (3) when the administrative action is patently illegal and amounts to
lack or excess of jurisdiction; (4) when there is estoppel on the part of the administrative
agency concerned; (5) when there is irreparable injury; (6) when respondent is a department
secretary whose acts, as an alter ego of the President, bears the implied and assumed approval
of the latter; (7) when to require exhaustion of administrative remedies would be
unreasonable; (8) when it would amount to a nullification of a claim; (9) when the subject
matter is a private land in land case proceedings; (10) when the rule does not provide a plain,
speedy and adequate remedy; (11) when there are circumstances indicating the urgency of
judicial intervention, and unreasonable delay would greatly prejudice the complainant; (12)
when no administrative review is provided by law; (13) where the rule of qualified political
agency applies; and (14) when the issue of non-exhaustion of administrative remedies has been
rendered moot.95

Here, to require exhaustion of administrative remedies would be unreasonable. What is more,

judicial intervention is necessary so as not to unduly prejudice the landowners. Respondents
have long been deprived of their landholdings, yet compensation has been withheld from them.
Accordingly, to make respondents wait for the DAR to process the claimfolders of the remaining
four properties would be unreasonable, unjust and manifestly prejudicial to them.

Respondents are entitled to the right of retention over their lands.

The right of retention is constitutionally guaranteed, subject to qualification by the legislature.

It serves to mitigate the effects of compulsory land acquisition by balancing the rights of the
landowner and the tenant and by implementing the doctrine that social justice was not meant
to perpetrate an injustice against the landowner. A retained area, as its name denotes, is land
which is not supposed to anymore leave the landowner’s dominion, thus sparing the
government from the inconvenience of taking land only to return it to the landowner
afterwards, which would be a pointless process.96

The opinion of the MARO97 that respondents are not entitled to retain areas out of their
landholdings because they applied for the same after the grace period set by the government 98
fails to persuade. A landowner whose land was taken pursuant to PD No. 27 has a right to
retain seven hectares of land, provided that the landowner is cultivating the area or will now
cultivate it.99 Those who did not avail of their rights of retention under PD No. 27 are entitled to
exercise the same under Section 6100 of RA No. 6657.101 Landowners may still avail of their
retention rights notwithstanding the August 27, 1985 deadline imposed by DAR AO No. 1, Series
of 1985. In Daez v. Court of Appeals,102 the Court, citing Association of Small Landowners, Inc. v.
Secretary of Agrarian Reform,103 disregarded said deadline and sustained the landowner’s
retention rights. Notably, under RA No. 6657, landowners who do not personally cultivate their
lands are no longer required to do so in order to qualify for the retention of an area not
exceeding five hectares. Instead, they are now required to maintain the actual tiller of the area
retained, should the latter choose to remain in those lands.104 Verily, there is no impediment to
the exercise by respondents of their retention rights under RA No. 6657.

In sum, We rule that:

1. The provisions of RA No. 6657 apply in determining the just compensation due to
respondents for the taking of their property. However, the value of P109,000.00, based on the
property’s market value and assigned by the CA as just compensation, is erroneous. The trial
court is thus directed to receive evidence pertaining to the factors to be considered in
determining just compensation, in accordance with DAR AO No. 6, Series of 1992, as amended
by AO No. 11, Series of 1994.

2. For purposes of computing just compensation, the date of issuance of emancipations is

deemed the date of taking, not October 21, 1972.

3. Respondents are entitled to payment of just compensation on their entire landholdings

covered by Operation Land Transfer, except for the five hectares of retention area each of them
are entitled to.

WHEREFORE, the petition is DENIED. The case is REMANDED to the court a quo for final
determination of just compensation due to respondents.

SO ORDERED.
 RUBEN T. REYES
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice