LAND BANK OF THE PHILIPPINES, PETITIONER, VS. EDGARDO L. SANTOS, RESPONDENT.

Land Bank of the Philippines versus Santos

The Case

This is a petition for review brought by the Land Bank of the Philippines against Edgardo L. Santos, the registered owner of a parcel of corn land in Camarines Sur that was taken from him under the agrarian reform program. The dispute is not about who owns the land or whether it should be taken, but about money: specifically, whether the trial court, sitting as a Special Agrarian Court, correctly awarded twelve percent interest per annum on the just compensation from January 1, 2010 until full payment. The case matters because it fixes the boundary between two kinds of interest in agrarian expropriation — the six percent increment that is built into the valuation itself, and the twelve percent interest that is awarded as damages for delay — and because it applies the interest-rate guidelines of the Nacar case, cutting the twelve percent rate at June 30, 2013 and dropping it to six percent thereafter.

Procedural History

Santos first sought a determination of just compensation before the Provincial Agrarian Reform Adjudication Board, which fixed the value of the land. Santos accepted that valuation in his letter dated September 5, 2001, but the Land Bank rejected it and filed an action for determination of just compensation before the Regional Trial Court of Naga City, Branch 23, sitting as a Special Agrarian Court. Santos moved to dismiss, and the trial court granted the dismissal. On appeal, the Court of Appeals reversed and remanded the case to the trial court for further proceedings, directing the Land Bank to compute and pay just compensation in accordance with the formula discussed in its decision.

On remand, the Land Bank made partial payments based on its initial valuation. On May 17, 2011, the Land Bank valued the land at One Million One Hundred Fifty Five Thousand Two Hundred Twenty Three Pesos and 41/100, and Santos accepted that amount. In a judgment dated June 22, 2011, the trial court ordered the release of that amount as just compensation, deducting what had already been paid, and declared the case terminated as far as just compensation was concerned.

Santos moved for reconsideration, claiming he was entitled to twelve percent legal interest from the time of taking. In an Order dated August 31, 2011, the trial court granted twelve percent interest amounting to One Million Four Hundred Thirty Seven Thousand Six Hundred Sixty Nine Pesos and 75/100, computed from June 26, 2000 to June 22, 2011. Both parties moved for reconsideration. In an Order dated October 10, 2011, the trial court modified its earlier order and fixed twelve percent interest from January 1, 2010 until full payment. The Land Bank then filed this petition for review before the Supreme Court. Santos had also elevated the same interest issue to the Court of Appeals, and that petition was consolidated with an earlier petition filed by the Land Bank; the Court of Appeals dismissed both and affirmed the trial court's orders. The Supreme Court then took up the Land Bank's petition for review.

Facts

Edgardo L. Santos owned a parcel of corn land in Minadongjol, Sangay, Camarines Sur, covered by a transfer certificate of title, with an area of 14.8065 hectares. The land was covered by Presidential Decree No. 27 when that law took effect on October 22, 1972. Because of that coverage, Santos was dispossessed of the landholding when emancipation patents were distributed to tenant-tillers.

On September 28, 2000, Santos filed a case for determination of just compensation before the Provincial Agrarian Reform Adjudication Board. On March 27, 2001, the Board declared the just value of the land at One Million One Hundred Forty Seven Thousand Four Hundred Sixty Six Pesos and 73/100, and Santos accepted that valuation in a letter dated September 5, 2001. The Land Bank rejected the valuation and brought the matter to the Special Agrarian Court. After the case was remanded by the Court of Appeals, the Land Bank made partial payments to Santos based on its initial valuation. On May 17, 2011, the Land Bank valued the land at One Million One Hundred Fifty Five Thousand Two Hundred Twenty Three Pesos and 41/100, which Santos accepted, and the trial court ordered that amount released as just compensation, less the amounts already paid.

The remaining controversy was interest. Santos claimed he was entitled to twelve percent interest from the time the land was taken in 1972. The trial court first awarded twelve percent interest computed from June 26, 2000 to June 22, 2011, then modified the award to run from January 1, 2010 until full payment. The trial court explained that from the time of taking until December 31, 2009, a six percent increment per annum had already been added to the value fixed for the land, so the twelve percent interest for delay should begin only on January 1, 2010.

Issues

• Whether or not the trial court correctly awarded twelve percent interest per annum in favor of Santos from January 1, 2010 until the just compensation of One Million One Hundred Fifty Five Thousand Two Hundred Twenty Three Pesos and 41/100 is fully paid.
• Whether or not the twelve percent interest should be reckoned from the time of taking in 1972 rather than from January 1, 2010.
• Whether or not the rate of interest should be adjusted beginning July 1, 2013 in light of the prevailing interest-rate guidelines.

Applicable Provisions

The decision applies the constitutional and statutory framework for just compensation under the agrarian reform law. Section 18 of Republic Act No. 6657, as referred to in the decision, provides:

Section 18. Valuation and Mode of Compensation. — The compensation that LBP shall pay to the landowner shall be such amount as will be agreed upon by the landowner, DAR and LBP in accordance with the criteria established in the statute.

This provision anchors the rule that just compensation is a statutory determination, and it is the basis for the trial court's order directing the Land Bank to pay the agreed amount.

The decision also relies on the administrative orders on interest, particularly Administrative Order No. 13, Series of 1994, Administrative Order No. 02, Series of 2004, and Administrative Order No. 06, Series of 2008, which the trial court described as follows:

These Administrative Orders provided for the payment of 6% annual interest if there is any delay in the payment of just compensation. DAR Administrative Order No. 06 is effective until December 31, 2009 only.

These orders explain why the six percent increment was already embedded in the valuation up to December 31, 2009, leaving only the period from January 1, 2010 onward for the twelve percent interest for delay.

Finally, the decision applies the interest guidelines restated in the Nacar case, which modified the Eastern Shipping Lines rules to reflect the reduced legal interest rate, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

This guideline governs the rate of interest after June 30, 2013, when the twelve percent rate is reduced to six percent.

Ruling

On the first issue, the Court held that the petition has no merit and affirmed the trial court's ruling. It explained that in expropriation cases, interest is due the landowner if there was delay in payment, and that the imposition of interest is in the nature of damages for the delay, which in effect makes the obligation on the part of the government one of forbearance. The Court found that the six percent increment per annum had already been included in the computation of the just compensation of the land, so the application of twelve percent interest beginning January 1, 2010 was correct. The trial court's October 10, 2011 Order, quoted by the Court, reasoned that the land fell under the administrative orders providing for six percent annual interest for delay, that Administrative Order No. 06 was effective only until December 31, 2009, and that twelve percent interest may therefore be awarded from January 2010 until full payment.

On the second issue, the Court rejected Santos's claim that the twelve percent interest should run from the taking in 1972. It relied on the ruling in the Land Bank versus Anson case, which held that the six percent yearly interest compounded annually was reckoned from October 21, 1972 up to the effectivity of the administrative orders, and that the period of application of the six percent interest was extended until December 31, 2009. Since the six percent increment had been included in the just compensation, the twelve percent interest could begin only on January 1, 2010.

On the third issue, the Court applied the Nacar case and held that the rate of twelve percent per annum would apply only until June 30, 2013. Beginning July 1, 2013 until full payment, the interest would be at six percent. The Court quoted the Nacar guidelines, including the rule that judgments that have become final and executory prior to July 1, 2013 shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

Doctrine

Interest on just compensation in expropriation is awarded as damages for delay in payment, and it makes the government's obligation one of forbearance. Interest is due only where there is delay, and the delay must be adequately proved; where payment is prompt and valid, no interest may be imposed as damages.

The six percent increment under the agrarian reform administrative orders is not the same as the twelve percent interest for delay. The six percent increment is compounded annually and is built into the valuation of the land up to December 31, 2009, so the twelve percent interest for delay begins only on January 1, 2010. A landowner cannot claim twelve percent interest from the date of taking in 1972, because the six percent increment already compensated him for that period.

Following the Nacar case, the twelve percent interest rate applies only until June 30, 2013. From July 1, 2013 until full payment, the rate is six percent per annum, consistent with the guideline that in the absence of stipulation the rate of interest shall be six percent per annum computed from default.

Disposition

The petition for review was dismissed, and the trial court's Orders dated August 31, 2011 and October 10, 2011 were affirmed with the modification that the twelve percent interest applies only until June 30, 2013, and that interest beginning July 1, 2013 until full payment is at six percent.

Remember This

The single line worth memorizing is that the six percent increment is part of the valuation while the twelve percent interest is damages for delay, so the twelve percent runs only from January 1, 2010 and only until June 30, 2013, after which the rate is six percent. Examiners like to use this case to test whether a candidate can separate the compounded six percent increment from the interest for delay, and to test the effect of the Nacar guidelines on the rate of legal interest in agrarian expropriation.