LAND BANK OF THE PHILIPPINES, PETITIONER, VS. GLENN Y. ESCANDOR, GEROME Y. ESCANDOR, EMILIO D. ESCANDOR AND VIOLETA YAP, RESPONDENTS.

Land Bank of the Philippines versus Escandor

The Case

This is a petition for review on certiorari brought by the Land Bank of the Philippines against the Escandor family, the registered owners of six parcels of agricultural land in Davao del Sur that the government placed under the Comprehensive Agrarian Reform Program. The respondents rejected the Land Bank's valuation, sued in the Regional Trial Court sitting as a Special Agrarian Court, and won a much higher award based on market value. The case matters because it settles two questions every agrarian law examinee must know: whether the Special Agrarian Court may disregard the formula fixed by the Department of Agrarian Reform in computing just compensation, and whether interest is automatically owed to the landowner in agrarian expropriation.

Procedural History

The Department of Agrarian Reform sustained the Land Bank's valuation after summary administrative proceedings. The respondents then filed separate complaints for the determination and payment of just compensation before the Regional Trial Court of Davao City, Branch 15, acting as a Special Agrarian Court. The cases were jointly tried, and the trial court rendered judgment awarding the respondents an aggregate of four million five hundred ninety thousand pesos, adopting the market value approach over the income value formula used by the Department. The Land Bank's motion for reconsideration was denied.

The Land Bank elevated the matter to the Court of Appeals by petition for review. The Court of Appeals declined to rule on the correctness of the computation, declared it premature, and directed the Special Agrarian Court to recompute just compensation reflecting the value of the properties at the time of taking, the formula used, and interest from taking to actual payment. It held that the factors in Section 17 of Republic Act Number 6657 are mere guidelines and that a rigid mathematical formula would violate the landowner's right to due process. The Court of Appeals denied reconsideration, so the Land Bank came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

The respondents Glenn and Gerome Escandor owned four parcels of agricultural land in Santa Cruz, Davao del Sur, while Emilio Escandor and Violeta Yap owned two parcels in Malalag, Davao del Sur. In 1995, the Department of Agrarian Reform placed these lands under compulsory acquisition under the Comprehensive Agrarian Reform Program pursuant to Republic Act Number 6657. The Land Bank, through its Land Valuation Office, conducted a field investigation and valued the properties at nine hundred twenty seven thousand eight hundred ninety five pesos and ninety seven centavos for the first two owners, and eight hundred forty nine thousand six hundred eleven pesos and one centavo for the other two.

The respondents rejected the valuation. The Department instituted summary administrative proceedings and sustained the Land Bank's figures, while the Land Bank deposited the compensation in cash and bonds in the respondents' names. In the meantime, the respondents' titles were cancelled and emancipation patents were issued to farmer beneficiaries.

On the eighth of October 1998, the respondents filed their complaints for determination and payment of just compensation. The trial court, choosing between the market value formula urged by the respondents and the income value formula used by the Department, preferred market value, reasoning that income-based valuation depends on unpredictable weather and volatile prices beyond the farmer's control. It awarded the higher amounts. The Court of Appeals then ordered a recomputation and the payment of interest, prompting this petition.

Issues

• Whether or not the Court of Appeals erred in ordering a remand to the Special Agrarian Court without directing that just compensation be computed in accordance with the valuation factors under Section 17 of Republic Act Number 6657 as translated into a formula by the Department of Agrarian Reform administrative orders.
• Whether or not the Court of Appeals erred in ordering the payment of interest on the just compensation.

Applicable Provisions

Section 17 of Republic Act Number 6657 provides:

Section 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 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.

This is the statutory list of factors that the Court holds had already been translated by the Department into a binding formula that the Special Agrarian Court must apply.

Ruling

On the first issue, the Court granted the petition and held that both the Special Agrarian Court and the Court of Appeals erred in not strictly observing the guidelines of Section 17 and the implementing administrative orders. The Court stressed that while the determination of just compensation is a judicial function, the Special Agrarian Court is not free to ignore the formula. It quoted its own recent ruling:

While the determination of just compensation is essentially a judicial function vested in the Regional Trial Court acting as a Special Agrarian Court, the judge cannot abuse his discretion by not taking into full consideration the factors specifically identified by law and implementing rules. Special Agrarian Courts are not at liberty to disregard the formula laid down in Department of Agrarian Reform Administrative Order Number 5, series of 1998, because unless an administrative order is declared invalid, courts have no option but to apply it. The courts cannot ignore, without violating the agrarian law, the formula provided by the Department of Agrarian Reform for the determination of just compensation.

The Court explained that Section 17 and the administrative orders are mandatory, not mere guides, and that the applicable issuance is Administrative Order Number 5, series of 1998, which took effect on the eleventh of May 1998 and was already in force when the complaints were filed. That order fixes the land value as the capitalized net income multiplied by six tenths, plus comparable sales multiplied by three tenths, plus market value per tax declaration multiplied by one tenth.

On the second issue, the Court disagreed with the Court of Appeals that interest is automatically awarded in agrarian cases. Relying on its ruling in Land Bank of the Philippines versus Celada, it held that interest in expropriation is in the nature of damages for delay in payment, and here there was no delay because the Land Bank promptly and validly deposited the compensation in cash and bonds in the landowners' names after they rejected the initial valuation, in accordance with Sections 16 and 18 of Republic Act Number 6657.

Doctrine

First, the determination of just compensation is a judicial function, and the Land Bank's or the Department's valuation is merely preliminary and not conclusive upon the landowner or the courts. Second, the Regional Trial Court sitting as a Special Agrarian Court exercises original and exclusive jurisdiction, not appellate jurisdiction, over petitions for the determination of just compensation. Third, the factors in Section 17 of Republic Act Number 6657 have been translated into a mandatory formula by the Department's administrative orders, and unless the order is declared invalid, the court has no option but to apply it. Fourth, interest on just compensation is awarded only as damages for delay; a prompt and valid deposit in cash and bonds in the landowner's name negates delay and defeats the claim for interest.

Disposition

The petition was granted; the Court of Appeals decision and resolution were affirmed with modification, and the Regional Trial Court of Davao City, Branch 15, was specifically directed to determine just compensation strictly in accordance with Section 17 of Republic Act Number 6657 and Department of Agrarian Reform Administrative Order Number 5, series of 1998, with no costs.

Remember This

Memorize this line: the Special Agrarian Court cannot disregard, without violating the agrarian law, the formula provided by the Department of Agrarian Reform for just compensation. Examiners use this case to test the mandatory character of the Section 17 formula and the rule that interest in agrarian expropriation requires delay, which a valid deposit in cash and bonds forecloses.