G.R. No. 169903 ; February 29, 2012
LAND BANK OF THE PHILIPPINES, Petitioner, vs. HONEYCOMB FARMS CORPORATION, Respondent.

FACTS

Honeycomb Farms Corporation voluntarily offered its two agricultural landholdings in Masbate, totaling 495.1374 hectares, for coverage under the Comprehensive Agrarian Reform Program. The government acquired 486.0907 hectares. The Land Bank of the Philippines (LBP), using DAR administrative orders, initially valued the land at approximately ₱1.9 million. After Honeycomb Farms rejected this, a DAR Regional Adjudicator revalued it at about ₱5.3 million, which was also rejected. Honeycomb Farms then filed a case with the Regional Trial Court (RTC), acting as a Special Agrarian Court (SAC), praying for ₱20 million in just compensation.
The RTC, disregarding the valuation formula in the DAR administrative orders, fixed just compensation at ₱25,232,000. It took judicial notice that 10 hectares were commercial land valued at ₱100,000 per hectare, with the remainder at ₱32,000 per hectare. The Court of Appeals (CA) modified this to ₱16,232,000 but affirmed the RTC’s method of valuation, deleting the award of attorney’s fees. The LBP appealed, arguing the SAC must consider the DAR formula.

ISSUE

Whether the Special Agrarian Court, in determining just compensation, is bound to apply the formula prescribed in the Department of Agrarian Reform administrative orders.

RULING

The Supreme Court GRANTED the petition and REMANDED the case to the RTC. The Court held that while the determination of just compensation is a judicial function, the RTC, acting as a SAC, did not exercise this function properly. The SAC is not bound by the DAR’s administrative formulas as strict formulas, but it cannot disregard them outright. The factors enumerated in Section 17 of Republic Act No. 6657 and the implementing DAR administrative orders provide the mandatory framework for valuation. The court must consider these factors and explain its departure from the formula if it finds the formula inapplicable or unjust.
In this case, the RTC erred by not taking the DAR formula into account at all. It arbitrarily fixed values based on judicial notice without any evidentiary basis or reference to the statutory factors like cost, market value, and productivity. The valuation was thus not in accordance with law. The case was remanded to the RTC for proper determination of just compensation using the DAR formula as a starting point, considering all factors under Section 17, RA 6657. The Court also ordered that the just compensation shall earn 12% interest per annum from the time LBP opened a trust account for Honeycomb Farms until full payment.