LAND BANK OF THE PHILIPPINES, PETITIONERS, VS. HEIRS OF ELEUTERIO CRUZ, REPRESENTED BY LORNA CRUZ, ET AL., RESPONDENTS.

Land Bank of the Philippines versus Heirs of Eleuterio Cruz

The Case

This is a petition for review brought by the Land Bank of the Philippines against the Heirs of Eleuterio Cruz, represented by Lorna Cruz, in an action for the determination of just compensation for riceland acquired by the Government under its agrarian reform program. The case matters because it settles a question every agrarian law practitioner must answer: when land is statutorily taken under Presidential Decree Number 27 in 1972 but compensation is settled decades later, is the court bound by the 1972 valuation formula, or may it fix just compensation under the later agrarian reform law? The Supreme Court answers that the determination of just compensation is essentially a judicial function, and that the Presidential Decree Number 27 and Executive Order Number 228 formula is only an initial valuation that is neither conclusive nor controlling.

Procedural History

The case began in the Regional Trial Court of Tuguegarao City, Branch 1, sitting as a Special Agrarian Court, on a petition filed by the Land Bank for the final determination of just compensation. The trial court rendered judgment on December 7, 2005, fixing just compensation at 80,000 pesos per hectare and ordering the Land Bank to pay the respondents 1,098,560 pesos. The Land Bank moved for reconsideration, which the trial court denied on January 26, 2006. The Land Bank then appealed to the Supreme Court, assigning as errors the trial court's use of the entire 13.7320 hectares and its reliance on Section 17 of Republic Act Number 6657 instead of the Presidential Decree Number 27 and Executive Order Number 228 formula.

Facts

The respondents, the Heirs of Eleuterio Cruz, were the registered owners of an unirrigated riceland in Lakambini, Tuao, Cagayan, with an area of 13.7320 hectares covered by a transfer certificate of title. Only 13.5550 hectares of that landholding were acquired by the Government under its Operation Land Transfer program under Presidential Decree Number 27.

Relying on the valuation guidelines under Presidential Decree Number 27 and Executive Order Number 228, the Land Bank and the Department of Agrarian Reform appraised the acquired property at 106,935.76 pesos, broken down into 29,651.54 pesos as land value and 77,284.22 pesos as incremental land value. The respondents rejected that valuation, so the Provincial Agrarian Reform Adjudicator of Cagayan conducted summary proceedings and, on November 23, 1999, valued the property at 80,000 pesos per hectare, or 1,084,400 pesos for the acquired area.

On January 28, 2000, the Land Bank commenced this case in the trial court for the determination of just compensation. The trial court upheld the adjudicator's valuation, stressing that the agrarian reform process was still incomplete because just compensation had yet to be settled, and that it would be inequitable to apply the 1972 guidelines given the Department of Agrarian Reform's long delay. The trial court also used the larger area of 13.7320 hectares, which the Land Bank challenged on appeal.

Issues

• Whether or not the total area placed under agrarian reform coverage is 13.7320 hectares or only 13.5550 hectares.
• Whether or not the trial court erred in fixing just compensation under Section 17 of Republic Act Number 6657 instead of the formula under Presidential Decree Number 27 and Executive Order Number 228.

Applicable Provisions

Section 17 of Republic Act Number 6657 provides:

Sec. 17. Determination of Just Compensation. – In determining just compensation, the cost of acquisition of the land, the current value of 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 farm workers 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.

This is the provision the trial court applied, and which the Supreme Court upholds as a valid guide for the trial court in fixing just compensation.

Section 2 of Executive Order Number 228 provides:

Sec 2. Henceforth, the valuation of rice and corn land 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.

This is the formula the Land Bank insists must govern, and which the Court holds to be merely an initial valuation.

Ruling

On the first issue, the Court agrees with the Land Bank that only 13.5550 hectares were placed under agrarian reform coverage, not 13.7320 hectares. The correct area was established before the Provincial Agrarian Reform Adjudicator and expressly stated in the pre-trial order, and the respondents did not contest the correction. The Land Bank therefore pays just compensation for only 13.5550 hectares.

On the second issue, the Court holds that the judicial determination of just compensation is not restricted by the formula under Presidential Decree Number 27 and Executive Order Number 228, even though the landholding was statutorily taken in 1972. Because the determination of just compensation is essentially a judicial function, any valuation under that formula is only an initial valuation that is neither conclusive nor controlling; otherwise the Land Bank or the Department of Agrarian Reform would usurp a judicial function. The formula is only an additional guide, and the trial court may rely on the other factors in Section 17 of Republic Act Number 6657. The Court notes that the trial court found the adjudicator's valuation well-founded and regularly made, and affirms it.

Doctrine

The determination of just compensation is essentially a judicial function. No statute, decree, or executive order can mandate that its own valuation shall prevail over the court's findings, and courts cannot be precluded from looking into the justness of the decreed compensation.

The valuation formula under Presidential Decree Number 27 and Executive Order Number 228 is only an initial valuation that is neither conclusive nor controlling. It is merely an additional guide, and the trial court may rely on the factors enumerated in Section 17 of Republic Act Number 6657 to fix just compensation.

Just compensation is the full and fair equivalent of the property taken from its owner by the expropriator, real, substantial, full, and ample.

Disposition

The Supreme Court affirmed the trial court's decision, with costs of suit against the Land Bank, while correcting the covered area to 13.5550 hectares.

Remember This

Memorize this line: the Presidential Decree Number 27 and Executive Order Number 228 formula is only an initial valuation, neither conclusive nor controlling, because fixing just compensation is essentially a judicial function. Examiners use this case to test whether you know that courts may apply Section 17 of Republic Act Number 6657 even to land taken under Presidential Decree Number 27 in 1972.