LAND BANK OF THE PHILIPPINES, PETITIONER, VS. HEIRS OF THE ESTATE OF MARIANO AND ANGELA VDA. DE VENERACION, NAMELY: PORFERIA V. VIDOLA, ENRIQUETA Q. VENERACION, SONIA VDA. DE VE…

Land Bank of the Philippines versus Heirs of the Estate of Mariano and Angela Vda. de Veneracion

The Case

This is a petition for review on certiorari brought by the Land Bank of the Philippines against the Heirs of the Estate of Mariano and Angela Vda. de Veneracion. The respondents are the former landowners of a parcel of riceland in Pamplona, Camarines Sur, which the government took in 1972 under the agrarian reform program and distributed to farmer-beneficiaries. The landowners asked the Special Agrarian Court to fix their just compensation. The trial court and the Court of Appeals fixed the amount using the valuation formula of the Department of Agrarian Reform and added legal interest running from 1998. The Land Bank does not dispute the principal amount. It disputes only the interest. The case matters because it settles a single, recurring question: from what date should legal interest run on just compensation computed under the current agrarian valuation formula, and at what rates.

Procedural History

The respondents filed a petition for the fixing of just compensation, accounting, collection of rental arrears, and damages before the Regional Trial Court of Naga City, Branch 23, sitting as the Special Agrarian Court. In a decision dated September 6, 2013, the trial court adopted the Land Bank's own computation and fixed just compensation at 1,523,204 pesos and 50 centavos. It then directed the Land Bank to pay interest at 12 percent per annum reckoned from 1998, the year tax declarations were issued to the farmer-beneficiaries, until full payment. The Land Bank moved for partial reconsideration, challenging only the imposition of interest. The trial court denied the motion, so the Land Bank appealed to the Court of Appeals.

The Court of Appeals affirmed the ruling but modified the interest. It imposed 12 percent per annum from 1998 up to June 30, 2013, and thereafter 6 percent per annum until full payment, following the amendment introduced by the Monetary Board of the Bangko Sentral ng Pilipinas in its Circular No. 799, Series of 2013. The Land Bank's motion for reconsideration was denied. It then filed this petition for review on certiorari before the Supreme Court.

Facts

The respondents co-owned a 24.4170 hectare parcel of riceland in Barrio Taguilid, now Veneracion, Batang, Pamplona, Camarines Sur, covered by a transfer certificate of title. In 1972, the Department of Agrarian Reform acquired a 21.8513 hectare portion of that land under Presidential Decree No. 27 and distributed it to farmer-beneficiaries. Certificates of land transfer and emancipation patents were issued in favor of those beneficiaries.

On February 3, 1999, the respondents filed their petition for the fixing of just compensation before the Special Agrarian Court. They alleged that they had never received just compensation for the land, which they claimed was first class irrigated riceland worth not less than 300,000 pesos per hectare. The Land Bank answered that the petition stated no cause of action against it because it had not yet received the claim folder for the land from the Department of Agrarian Reform.

At trial, the Land Bank valued the land at 69,707 pesos and 73 centavos per hectare, or a total of 1,523,204 pesos and 50 centavos, using the formula under Department of Agrarian Reform Administrative Order No. 1, Series of 2010. The trial court adopted that computation. The only remaining dispute, through the appeal and up to the Supreme Court, was the interest.

Issues

• Whether or not the Court of Appeals erred in holding the Land Bank liable to pay legal interest on the amount of just compensation.
• Whether or not legal interest on just compensation computed under Department of Agrarian Reform Administrative Order No. 1, Series of 2010 should be reckoned from the time of taking, as the respondents urged and the lower courts held.

Applicable Provisions

Section 31 of Republic Act No. 9700, which further amended Republic Act No. 6657, is the statutory anchor of the governing valuation rules. The decision refers to it as the basis for Department of Agrarian Reform Administrative Order No. 1, Series of 2010. The text of the section is not quoted in the decision, so it is not reproduced here. Its bearing is this: the Administrative Order issued in its implementation supplied the formula that fixed the principal amount of 1,523,204 pesos and 50 centavos.

Section 5 of Republic Act No. 6657, as discussed in the decision, supplies the factors of just compensation. The decision summarizes them as the factors under Republic Act No. 6657, as translated by the Department of Agrarian Reform into a basic formula. The text of the section is not quoted in the decision, so it is not reproduced here. Its bearing is this: the formula under Administrative Order No. 5, Series of 1998, namely land value equals capitalized net income times 0.6, plus comparable sales times 0.3, plus market value times 0.1, is the translation of those factors.

The decision quotes its own definition of just compensation from Land Bank versus Orilla:

Constitutionally, "just compensation" is the sum equivalent to the market value of the property, broadly described as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between the one who receives and the one who desires to sell, it being fixed at the time of the actual taking by the government. Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. It has been repeatedly stressed by this Court that the true measure is not the taker's gain but the owner's loss. The word "just" is used to modify the meaning of the word "compensation" to convey the idea that the equivalent to be given for the property to be taken shall be real, substantial, full, and ample.

This definition bears on the case because it explains why delay in payment must be answered with interest: the measure is the owner's loss, and the owner's loss grows with every year of waiting.

Ruling

On the first issue, the Court held that the Land Bank is liable for legal interest. It is undisputed that Administrative Order No. 1, Series of 2010 governed the valuation. That Order reckons annual gross production and selling price to the latest twelve months of data immediately preceding June 30, 2009, using current prices rather than the values at the time of taking. The Court explained that the purpose of using those later, higher prices is to address the variability of the value of the currency between the time of taking and June 30, 2009, and so to update the value of the property. But even with updated prices, the just compensation remained unpaid as of June 30, 2009, while the landowners had long been deprived of the use and benefit of their land through the issuance of certificates of land transfer and emancipation patents. The Court stressed that just compensation contemplates just and timely payment, and that prompt payment encompasses payment in full as finally determined by the courts. It refused to let the absence of the claim folders excuse the delay, since that would abet a grave injustice caused by the failure of the Department of Agrarian Reform to forward the folders. It likewise rejected the Land Bank's argument that interest should run only from the finality of the trial court's decision.

On the second issue, the Court held that interest should not run from the time of taking. Because the land had already been valued using current prices, and that valuation had already accounted for the income the land would have earned and the variability of the currency between the time of taking and June 30, 2009, it would be neither fair nor just to charge interest from the earlier date. The Court therefore moved the reckoning point forward. Interest on the unpaid balance of just compensation runs at 12 percent per annum from June 30, 2009 up to June 30, 2013, and thereafter at 6 percent per annum until full payment, in line with the amendment introduced by Monetary Board Circular No. 799, Series of 2013.

Doctrine

First, just compensation includes prompt payment. The concept embraces not only the correct determination of the amount but also payment within a reasonable time from taking, because otherwise the owner suffers the loss of his land while waiting years for the equivalent. Second, where just compensation is computed under the formula of Administrative Order No. 5, Series of 1998, which uses values as of the time of field investigation and receipt of the claim folder, legal interest runs from the time of taking, such as the issuance of emancipation patents, because the obligation is treated as an effective forbearance on the part of the State. Third, and this is the rule of this case, where just compensation is computed under Administrative Order No. 1, Series of 2010, which already uses current prices as of June 30, 2009, interest does not run from the time of taking. It runs at 12 percent per annum from June 30, 2009 up to June 30, 2013, and at 6 percent per annum thereafter until full payment. Fourth, the absence of the claim folder does not excuse the Land Bank, because the owner's entitlement to prompt payment cannot be defeated by the government's own delay.

Disposition

The petition was denied. The Court of Appeals decision and resolution were affirmed with modification, imposing legal interest on the just compensation at 12 percent per annum from June 30, 2009 up to June 30, 2013, and at 6 percent per annum thereafter until full payment.

Remember This

Memorize the pairing: under Administrative Order No. 1, Series of 2010, interest runs not from the taking but from June 30, 2009, at 12 percent until June 30, 2013 and 6 percent thereafter, because the formula already uses current prices. Examiners use this case to test whether you know that the reckoning point of legal interest follows the valuation formula used, and that prompt payment is part of just compensation itself.