LBP vs HFC

LAND BANK OFTHE PHILIPPINES, Petitioner,
vs.
HONEYCOMB FARMS CORPORATION, Respondent.

G.R. No. 166259               November 12, 2012

(Supreme Court, Second Division)

Facts:

Honeycomb Farms Corp. (HFC) voluntarily offered their two parcels of land to the Department of Agrarian Reform (DAR) for P 10,480,000.00 or P 21,165.00. The Landbank of the Philippines (LBP) used the guidelines set forth in DAR Administrative Order (AO) No. 17 series of 1989 as amended by DAR AO No. 3 series of 1991 to fix the value of these lands. HFC rejected the valuation. The voluntary offer to sell was referred to the DAR adjudication Board. The Regional adjudicator fixed the value of landholdings at P 5,324,529.00. HFC filed a case with the Regional Trial Court (RTC)of Masbate acting as Special Agrarian Court against the DAR Secretary and LBP, praying to compensate HFC for its landholdings amounting to P 12,440,000.00. In its amended complaint, HFC increased the valuation P 20,000,000.00. LBP, on the other hand, revalued the land under TCT No. T-2872 at P 1,373,244.78, which was formerly fixed at P 2,527,749.60; and TCT No. T-2549 at P 1,513,097.57, which was previously fixed at P 2,796,800.00. The RTC made its own valuation when the Board of Commissioners could not agree on the common valuation. The RTC took judicial notice of the fact that a portion of 10 hectares of that land is a commercial land because it is near the commercial district of Cataingan, Masbate.

Both parties appealed to the Court of Appeals (CA). HFC argued that the government illegally failed to pay just compensation pursuant when LBP opened trust account in its behalf which is contrary to existing jurisprudence. LBP on the other hand argued that the RTC erred when it disregarded the formula set forth in DAR AO No. 6 series of 1992 as amended by DAR AO No. 11 series of 1994 and in declaring the 10 hectares of that land as a commercial land. The CA decided in favor of HFC. CA held that the lower courts are not bound by the factors enumerated in Section 17 of RA 6657 which are mere guide in determining just compensation. Also, the valuation by LBP based on the formula was too low and, therefore, confiscatory. LBP argued that the CA erred in not applying the formula based on law and that the land taken pursuant to the State’s agrarian reform program involves both the exercise of the State’s power of eminent domain and the police power of the State. Consequently, the just compensation for land taken for agrarian reform should be less than the just compensation given in the ordinary exercise of eminent domain. Hence, this petition.

ISSUES:

1. Whether the RTC erred when it made its own valuation and disregarded the DAR formula/ Whether application of DAR’s formula is mandatory in determining Just Compensation, hence the RTC and CA erred when both disregarded the same;

2. Whether the compensation to be paid should be less than the market value of the property because the taking was not done in LBP’s traditional exercise of the power of eminent domain;

3. Whether a hearing is necessary before the RTC can take judicial notice of the nature of the land; and

4. Whether payment through trust account is valid.

HELD:

            Petition GRANTED.

Mandatory application of the DAR formula 

To guide the RTC in its function as Special Agrarian Court, Section 17 of RA 6657 enumerates the factors that have to be taken into consideration to accurately determine just compensation. This provision states:

            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.

In Land Bank of the Philippines v. Sps. Banal, the DAR, as the administrative agency tasked with the implementation of the agrarian reform program, already came up with a formula to determine just compensation which incorporated the factors enumerated in Section 17 of RA 6657. The Supreme Court said:

These factors [enumerated in Section 17] have been translated into a basic formula in DAR Administrative Order No. 6, Series of 1992, as amended by DAR Administrative Order No. 11, Series of 1994, issued pursuant to the DAR's rule-making power to carry out the object and purposes of R.A. 6657, as amended.

In Landbank of the Philippines v. Celada, The Supreme Court emphasized the duty of the RTC to apply the formula provided in the applicable DAR AO to determine just compensation, stating that:

While [the RTC] is required to consider the acquisition cost of the land, the current value of like properties, its nature, actual use and income, the sworn valuation by the owner, the tax declaration and the assessments made by the government assessors to determine just compensation, it is equally true that these factors have been translated into a basic formula by the DAR pursuant to its rule-making power under Section 49 of R.A. No. 6657. As the government agency principally tasked to implement the agrarian reform program, it is the DAR's duty to issue rules and regulations to carry out the object of the law. [The] DAR [Administrative Order] precisely "filled in the details" of Section 17, R.A. No. 6657 by providing a basic formula by which the factors mentioned therein may be taken into account. The [RTC] was at no liberty to disregard the formula which was devised to implement the said provision.

It is elementary that rules and regulations issued by administrative bodies to interpret the law which they are entrusted to enforce, have the force of law, and are entitled to great respect. Administrative issuances partake of the nature of a statute and have in their favor a presumption of legality. As such, courts cannot ignore administrative issuances especially when, as in this case, its validity was not put in issue. Unless an administrative order is declared invalid, courts have no option but to apply the same.

The Supreme Court reiterated the mandatory application of the formula in the applicable DAR administrative regulations in Land Bank of the Philippines v. Lim, Land Bank of the Philippines v. Heirs of Eleuterio Cruz, and Land Bank of the Philippines v. Barrido. In Barrido, The Supreme Court was explicit in stating that:

            While the determination of just compensation is essentially a judicial function vested in the RTC acting as a Special Agrarian Court, the judge cannot abuse his discretion by not taking into full consideration the factors specifically identified by law and implementing rules. Special Agrarian Courts are not at liberty to disregard the formula laid down in DAR A.O. No. 5, series of 1998, because unless an administrative order is declared invalid, courts have no option but to apply it. The courts cannot ignore, without violating the agrarian law, the formula provided by the DAR for the determination of just compensation.

These rulings plainly impose on the RTC the duty to apply the formula laid down in the pertinent DAR administrative regulations to determine just compensation. Clearly, the CA and the RTC acted with grievous error when they disregarded the formula laid down by the DAR, and chose instead to come up with their own basis for the valuation of the subject land.

The compensation to be paid should not be less than the market value of the property although the taking was not done in LBP’s traditional exercise of the power of eminent domain.

The Supreme Court discredit the argument of LBP that since the taking done by the government for purposes of agrarian reform is not a traditional exercise of the power of eminent domain but one which is done in pursuance of social justice and which involves the State’s police power, the just compensation to be paid to the landowners for these parcels of agricultural land should be less than the market value of the property.

When the State exercises its inherent power of eminent domain, the Constitution imposes the corresponding obligation to compensate the landowner for the expropriated property. This principle is embodied in Section 9, Article III of the Constitution, which provides: "Private property shall not be taken for public use without just compensation." 

When the State exercises the power of eminent domain in the implementation of its agrarian reform program, the constitutional provision which governs is Section 4, Article XIII of the Constitution, which provides that the State shall, by law, undertake an agrarian reform program founded on the right of farmers and regular farmworkers who are landless, to own directly or collectively the lands they till or, in the case of other farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress may prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment of just compensation. 

Notably, this provision also imposes upon the State the obligation of paying the landowner compensation for the land taken, even if it is for the government’s agrarian reform purposes. Specifically, the provision makes use of the phrase “just compensation,” the same phrase used in Section 9, Article III of the Constitution. That the compensation mentioned here pertains to the fair and full price of the taken property.

The Supreme Court brushed aside the LBP’s attempt to differentiate just compensation paid in what it terms as “traditional” exercise of eminent domain and eminent domain in the context of agrarian reform in Apo Fruits Corporation and Hijo Plantation, Inc. v. Land Bank of the Philippines, thus:

            To our mind, nothing is inherently contradictory in the public purpose of land reform and the right of landowners to receive just compensation for the expropriation by the State of their properties. That the petitioners are corporations that used to own large tracts of land should not be taken against them.  As Mr. Justice Isagani Cruz eloquently put it:

[S]ocial justice – or any justice for that matter – is for the deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that, in case of reasonable doubt, we are called upon to tilt the balance in favor of the poor, to whom the Constitution fittingly extends its sympathy and compassion. But never is it justified to prefer the poor simply because they are poor, or to reject the rich simply because they are rich, for justice must always be served, for poor and rich alike, according to the mandate of the law.

Hearing is necessary before RTC takes judicial notice of nature of land

.

While the lower court is not precluded from taking judicial notice of certain facts, it must exercise this right within the clear boundary provided by Section 3, Rule 129 of the Rules of Court, which provides:

Section 3. Judicial notice, when hearing necessary. – During the trial, the court, on its own initiative, or on request of a party, may announce its intention to take judicial notice of any matter and allow the parties to be heard thereon.

After the trial, and before judgment or on appeal, the proper court, on its own initiative, or on request of a party, may take judicial notice of any matter and allow the parties to be heard thereon if such matter is decisive of a material issue in the case.

The classification of the land is obviously essential to the valuation of the subject property, which is the very issue in the present case. The parties should thus have been given the opportunity to present evidence on the nature of the property before the lower court took judicial notice of the commercial nature of a portion of the subject landholdings. As we said in Land Bank of the Phils. v. Wycoco:

The power to take judicial notice is to be exercised by courts with caution especially where the case involves a vast tract of land. Care must be taken that the requisite notoriety exists; and every reasonable doubt on the subject should be promptly resolved in the negative.  To say that a court will take judicial notice of a fact is merely another way of saying that the usual form of evidence will be dispensed with if knowledge of the fact can be otherwise acquired.  This is because the court assumes that the matter is so notorious that it will not be disputed.   But judicial notice is not judicial knowledge. The mere personal knowledge of the judge is not the judicial knowledge of the court, and he is not authorized to make his individual knowledge of a fact, not generally or professionally known, the basis of his action.

In these lights, we find that a remand of this case to the court of origin is necessary for the determination of just compensation, in accordance with the formula stated in DAR AO No. 6, series of 1992, as amended by DAR AO No. 11, series of 1994, which are the applicable issuances on fixing just compensation.

Payment through Trust Account is invalid.

In Land Bank of the Phil. v. CA, the Supreme Court struck down as void DAR Administrative Circular No. 9, Series of 1990, providing for the opening of trust accounts in lieu of the deposit in cash or in bonds contemplated in Section 16(e) of RA 6657 and said:

It is very explicit x x x [from Section 16(e)] that the deposit must be made only in “cash” or in “LBP bonds.” Nowhere does it appear nor can it be inferred that the deposit can be made in any other form. If it were the intention to include a “trust account” among the valid modes of deposit, that should have been made express, or at least, qualifying words ought to have appeared from which it can be fairly deduced that a “trust account” is allowed. In sum, there is no ambiguity in Section 16(e) of RA 6657 to warrant an expanded construction of the term “deposit.”

x x x x

In the present suit, the DAR clearly overstepped the limits of its power to enact rules and regulations when it issued Administrative Circular No. 9. There is no basis in allowing the opening of a trust account in behalf of the landowner as compensation for his property because, as heretofore discussed, Section 16(e) of RA 6657 is very specific that the deposit must be made only in “cash” or in “LBP bonds.” In the same vein, petitioners cannot invoke LRA Circular Nos. 29, 29-A and 54 because these implementing regulations cannot outweigh the clear provision of the law. Respondent court therefore did not commit any error in striking down Administrative Circular No. 9 for being null and void.