G.R. No. 196707 , June 17, 2015
SPOUSES NILO and ERLINDA MERCADO, Petitioners, vs. LAND BANK OF THE PHILIPPINES, Respondent.

FACTS

Petitioners Spouses Nilo and Erlinda Mercado were the registered owners of 9.8940 hectares of agricultural land in Davao City. The Provincial Agrarian Reform Office (PARO) informed them that 5.2624 hectares would be placed under the Comprehensive Agrarian Reform Program (CARP) coverage, with an offered just compensation of ₱287,227.16. Petitioners rejected this valuation, claiming the fair market value was ₱250,000.00 per hectare, citing a prior sale of a different portion of their land and the property’s suitability for agriculture and other uses. After summary administrative proceedings sustained the Land Bank’s valuation, and the Department of Agrarian Reform Adjudication Board (DARAB) ruled that such decisions were not appealable to it, petitioners filed a Complaint for payment of just compensation before the Regional Trial Court (RTC) acting as a Special Agrarian Court (SAC). The RTC fixed just compensation at ₱25.00 per square meter, considering factors like the zonal value, the land’s productivity, location, and the sale price of the adjacent portion. The Court of Appeals reversed the RTC Decision, reinstating the Land Bank’s valuation, emphasizing the mandatory application of the DAR Administrative Order No. 5 formula. Petitioners elevated the case to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in reversing the RTC’s determination of just compensation and in mandatorily applying the DAR Administrative Order No. 5 formula without considering the factors under Section 17 of Republic Act No. 6657 .

RULING

The Supreme Court PARTLY GRANTED the Petition. It reversed and set aside the Court of Appeals Decision and remanded the case to the RTC for proper determination of just compensation. The Court held that while the determination of just compensation is a judicial function of the RTC-SAC, it must be exercised within the bounds of the law. The RTC-SAC must consider the factors enumerated in Section 17 of RA 6657 and generally apply the formula provided in the applicable DAR administrative orders. The RTC in this case erred by not explaining how it considered these factors and how it arrived at the specific valuation of ₱25.00 per square meter. Its decision was based on general observations without factual or legal justification. Conversely, the Court of Appeals also erred by strictly and solely applying the DAR formula without itself evaluating the Section 17 factors. The Supreme Court emphasized that the formula is only a guide, and the RTC-SAC must exercise its judicial discretion by making its own independent evaluation of all relevant factors to determine truly “just” compensation.