G.R. No. 175175; September 29, 2008
LAND BANK OF THE PHILIPPINES, Petitioner, vs. HEIRS OF ELEUTERIO CRUZ, Respondents.

FACTS

The respondents, Heirs of Eleuterio Cruz, are the registered owners of a 13.7320-hectare unirrigated riceland in Tuao, Cagayan. Of this total area, 13.5550 hectares were placed under the Operation Land Transfer program of Presidential Decree (P.D.) No. 27. The petitioner, Land Bank of the Philippines (LBP), as the financial intermediary for agrarian reform, valued the land at P106,935.76 using the formula prescribed under P.D. No. 27 and Executive Order (E.O.) No. 228. The respondents rejected this valuation and filed a summary proceeding for preliminary determination of just compensation before the Provincial Agrarian Reform Adjudicator (PARAD). The PARAD fixed just compensation at P80,000.00 per hectare.
Dissatisfied, the LBP filed a petition for determination of just compensation before the Regional Trial Court (RTC) of Tuguegarao City, sitting as a Special Agrarian Court (SAC). During trial, LBP presented evidence that the land’s average annual production was 25 to 40 cavans per hectare, justifying its valuation based on the P.D. No. 27 formula. The respondents countered, through testimony of heir Lorna Cruz-Felipe, that the land produced 80 to 100 cavans per hectare and had a current market value of P150,000.00 to P200,000.00 per hectare. On December 7, 2005, the SAC rendered a decision fixing just compensation at P80,000.00 per hectare, ordering LBP to pay the respondents P1,098,560.00. The SAC gave weight to the PARAD’s valuation and applied the factors under Section 17 of Republic Act (R.A.) No. 6657 (Comprehensive Agrarian Reform Law), while disregarding both parties’ extreme claims due to insufficient evidence.
LBP appealed to the Court of Appeals (CA). The CA, in its August 17, 2006 Decision, corrected the total compensable area to 13.5550 hectares as established in the pre-trial order but affirmed the valuation of P80,000.00 per hectare. The CA denied LBP’s motion for reconsideration. LBP then elevated the case to the Supreme Court via a Petition for Review on Certiorari, insisting that the mandatory formula under P.D. No. 27 and E.O. No. 228 should govern since the land was acquired under P.D. No. 27, and just compensation should be based on the value at the time of taking in 1972.

ISSUE

Whether the Special Agrarian Court (SAC) and the Court of Appeals (CA) erred in fixing just compensation at P80,000.00 per hectare instead of applying the formula prescribed under P.D. No. 27 and E.O. No. 228.

RULING

The Supreme Court DENIED the petition and AFFIRMED the assailed CA Decision and Resolution. The Court held that the SAC correctly determined just compensation at P80,000.00 per hectare and was not bound to apply the formula under P.D. No. 27 and E.O. No. 228.
The Ratio Decidendi is as follows: While the subject landholding was initially acquired under P.D. No. 27, the proceedings for the final determination of just compensation were pending and not yet completed when R.A. No. 6657 took effect. The Court, citing Paris v. Alfeche and Land Bank of the Philippines v. Celada, reiterated the doctrine that for lands covered by P.D. No. 27 but where just compensation has not been settled prior to the effectivity of R.A. No. 6657, the just compensation should be determined in accordance with the latter law. R.A. No. 6657 provides a more comprehensive and equitable framework, as embodied in its Section 17 and the implementing DAR Administrative Orders (particularly A.O. No. 5, series of 1998). These guidelines mandate the consideration of various factors such as the land’s cost of acquisition, current value, nature, actual use, income, and non-payment of taxes, among others. The SAC, in the exercise of its original and exclusive jurisdiction, is not strictly bound by any pre-set formula but must exercise judicial discretion in considering all relevant factors to arrive at a fair and equitable valuation that reflects the full and fair equivalent of the property taken. The Court found that the SAC properly exercised this discretion, considered the evidence on record, and arrived at a reasonable valuation, which was affirmed by the CA. The petitioner’s rigid insistence on the P.D. No. 27 formula, which is based solely on historical data (like the 1972 government support price), was rejected as it would result in an inequitable and confiscatory valuation that does not reflect contemporary values and fair compensation.

DOCTRINES

1. Applicable Law for P.D. No. 27 Lands with Pending Compensation: For agricultural lands placed under the coverage of P.D. No. 27 but where the just compensation has not been finally determined prior to June 15, 1988 (the effectivity of R.A. No. 6657), the just compensation must be ascertained pursuant to the provisions of R.A. No. 6657, its implementing rules, and relevant jurisprudence (Paris v. Alfeche; Land Bank of the Philippines v. Celada).
2. Discretion of the Special Agrarian Court (SAC): The RTC, acting as a SAC, has original and exclusive jurisdiction over the determination of just compensation. In exercising this jurisdiction, the court is not bound by the formulas prescribed by administrative agencies but must exercise judicial discretion, consider all factors enumerated in Section 17 of R.A. No. 6657 and applicable administrative orders, and independently weigh the evidence to determine a valuation that is just, equitable, and reflective of the property’s fair market value at the time of payment.
3. Just Compensation as a Judicial Prerogative: The determination of just compensation is a judicial function. While the initial valuation by government agencies like LBP and DAR is relevant, the final authority to decide just compensation lies with the courts, which must ensure the compensation is not merely a mathematical computation but the full and fair equivalent of the property taken from the owner.