ALLIED BANKING CORPORATION, PETITIONER, VS. THE LAND BANK OF THE PHILIPPINES AND THE SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, RESPONDENTS.

Allied Banking versus Land Bank of the Philippines

The Case

This is a petition for review brought by Allied Banking Corporation against the Land Bank of the Philippines and the Secretary of the Department of Agrarian Reform. The bank owns two adjoining parcels of land in Hermosa, Bataan, which the Department of Agrarian Reform compulsorily acquired under the Comprehensive Agrarian Reform Law. The bank rejected the government's valuation and asked the courts to fix a higher just compensation. The case matters because it settles a question every agrarian practitioner must answer: when a Regional Trial Court sits as a Special Agrarian Court, may it set just compensation by any method it prefers, or is it bound by the factors in the agrarian law and the formula in the Department of Agrarian Reform's administrative orders? The Supreme Court answers that the law and the formula are mandatory.

Procedural History

The Land Bank fixed the value of the two parcels in its Notices of Valuation, and later slightly increased the valuation of the first parcel. Allied rejected the figures and brought its objections before the Provincial Agrarian Reform Adjudicator, who upheld the Land Bank's valuation. Allied then filed a petition for just compensation with the Regional Trial Court of Dinalupihan, Bataan, which was later re-raffled to the Regional Trial Court of Balanga City, Branch 1, sitting as a Special Agrarian Court. On motion of the parties, the court appointed commissioners, including one nominated by Allied. Only Allied's commissioner submitted a report, which used the market data approach and valued the land at fifteen pesos per square meter. The trial court adopted that report in full and fixed the total value of the two parcels at six million two hundred ninety six thousand pesos. The Land Bank and the Department appealed. The Court of Appeals annulled the trial court's decision, holding that it had failed to observe the basic rules of procedure and the fundamental requirements for determining just compensation, and remanded the case for a proper determination. Allied's motion for reconsideration was denied. Allied then came to the Supreme Court by petition for review under Rule 45.

Facts

Allied owned two abutting parcels in Mabiga, Hermosa, Bataan, with areas of about twenty point four eight hectares and about twenty one point three eight hectares. Both were placed under the coverage of the Comprehensive Agrarian Reform Law and compulsorily acquired by the Department of Agrarian Reform. Using the formula in the Department's administrative orders, the Land Bank valued the first parcel at one million one hundred seventy thousand six hundred eighty three pesos and seventy centavos, and the second at one million four hundred twenty seven thousand thirty pesos and seventy three centavos. It later raised the first parcel's valuation slightly.

Allied rejected these figures. After a survey of prevailing market values in the vicinity, it insisted on one hundred eighty thousand pesos per hectare, which would yield more than three million six hundred thousand pesos for the first parcel and more than three million eight hundred thousand pesos for the second. The Provincial Agrarian Reform Adjudicator upheld the Land Bank.

Before the Special Agrarian Court, commissioners were appointed upon the agreement of the parties. Only the commissioner nominated by Allied submitted a report. Relying on an appraisal that used the market data approach, he valued the land at fifteen pesos per square meter, or one hundred fifty thousand pesos per hectare, for a total of six million two hundred ninety six thousand pesos. The trial court adopted this valuation outright. The Court of Appeals set it aside, and the case reached the Supreme Court.

Issues

• Whether or not the trial court, acting as a Special Agrarian Court, may disregard the factors in Section 17 of the Comprehensive Agrarian Reform Law and the formula in the Department of Agrarian Reform's administrative orders, and instead adopt the market data approach of a court-appointed commissioner.
• Whether or not the trial court gravely abused its discretion in relying solely on the report of Allied's commissioner, without notice to the other parties and without the report being substantiated by competent evidence.

Applicable Provisions

Section 17 of Republic Act No. 6657, as amended, 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 the Special Agrarian Court must weigh, and the Court holds it cannot be ignored.

Department Administrative Order Number 6, Series of 1992, as amended, provides:

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

This is the basic formula translating Section 17 into computable values, with LV as land value, CNI as capitalized net income, CS as comparable sales, and MV as market value per tax declaration.

The same administrative order provides for cases where a factor is missing:

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)

This shows the formula is adaptable, so the court need not abandon it when data is incomplete.

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)

This alternative applies where income data is unavailable but comparable sales exist.

When both the CS and CNI are not present and only MV is applicable, the formula shall be: LV = MV x 2

Even in the poorest data situation, the administrative order supplies a method, so the court is never at liberty to invent its own.

Ruling

On the first issue, the Court ruled against Allied. While the determination of just compensation is essentially a judicial function vested in the Regional Trial Court as a Special Agrarian Court, that discretion must be discharged within the bounds of the law. The Court stressed that it has repeatedly set aside valuations that ignored Section 17 and the Department's formula, and that the Special Agrarian Court is at no liberty to disregard a formula devised to implement the statute. Rules issued by administrative bodies entrusted to enforce a law have the force of law and are entitled to great respect, and unless an administrative order is declared invalid, courts have no option but to apply it. Here, the trial court adopted the market data approach hook, line, and sinker, without considering Section 17 or the formula.

On the second issue, the Court likewise found no error in the Court of Appeals. The trial court relied solely on the report of Allied's commissioner although four had been appointed, the other parties were not shown to have been notified of the report, and the report was not substantiated by competent evidence. The judgment was therefore properly annulled and the case remanded.

Doctrine

First, the determination of just compensation is a judicial function, but the Special Agrarian Court's discretion must be exercised within the bounds of Section 17 of the Comprehensive Agrarian Reform Law and the formula in the Department of Agrarian Reform's administrative orders. Second, those administrative orders have the force of law and are entitled to great respect; unless declared invalid, courts must apply them. Third, a valuation that ignores the statutory factors and the formula amounts to grave abuse of discretion and will be set aside. Fourth, the formula is flexible, with alternative equations where a factor is absent, so incompleteness of data is no excuse for abandoning it.

Disposition

The Supreme Court denied Allied's petition, sustained the annulment of the trial court's valuation, and left the case remanded to the Special Agrarian Court for a determination of just compensation in strict compliance with the agrarian law, the Department's administrative orders, and the Rules of Court.

Remember This

Memorize this line: the Special Agrarian Court's discretion in fixing just compensation must be discharged within the bounds of the law, meaning Section 17 and the Department of Agrarian Reform formula are mandatory, not mere guides. Examiners use this case whenever a landowner argues that the court may adopt any valuation method, such as the market data approach, once the case reaches the Regional Trial Court.