Alfonso v. Land Bank of the Philippines, GR. Nos.

181912 and 183347, November 29, 2016

 Upon the effectivity of RA 6657, the DAR sought to acquire Cynthia Palomar's San Juan and
Bibincahan properties at a valuation of P36,066.27 and P792,869.06, respectively. Palomar,
however, rejected the valuations.

Land Valuation Case Nos. 68-01 and 70-01 were consequently filed before the DAR Provincial
Adjudication Board (Board) for summary determination of just compensation. In the meantime, or
on April 16, 2001, Palomar sold her rights over the two properties to petitioner Ramon M. Alfonso
(Alfonso).

Upon orders from the Board, the parties submitted their position papers and evidence to support
their respective proposed valuations. Applying DAR Administrative Order No. 5, Series of 1998,
(DAR AO No. 5 [1998]), Provincial Adjudicator Manuel Capellan valued the properties as follows:
San Juan Property: 103,955.66, Bibincahan Property: 2,314,115.73.

Respondent LBP, as the CARP financial intermediary pursuant to Section 64 of RA 6657, filed a
motion seeking for a reconsideration of the Provincial Adjudicator's valuations. This was denied in
an Order dated September 13, 2002.

Both the LBP and Alfonso filed separate actions for the judicial determination of just compensation
of the subject properties before Branch 52 of the Regional Trial Court, sitting as Special Agrarian
Court (SAC), of Sorsogon City.

In his appraisal of the properties, Commissioner Chua utilized two approaches in valuing the
subject properties, the Market Data Approach (MDA) and the Capitalized Income Approach (CIA),
due to their "different actual land use." The Cuervo Report valued the properties as follows: San
Juan Property: Php442,830, Bibincahan Property: Php5,650,680.

Alfonso alleged in his Complaint that the valuation did not take the actual number of fruit-bearing
trees; non-fruit-bearing trees; improvements; and the proximity of the properties to commercial
centers, markets, roads, national highways, service facilities, commercial establishments, and
government offices into full consideration. Alfonso also alleged that despite the disagreement on
the proper value of the properties, the Department of Agrarian Reform "already dispossessed
[him], deprived him of his rightful share on [the land's] produce and [in his view, the Department of
Agrarian Reform] arbitrarily awarded the property to its farmer beneficiaries.

LBP faulted the SAC for giving considerable weight to the Cuervo Report and argued that the
latter's valuation was arrived at in clear violation of the provisions of RA 6657, DAR AO No. 5
(1998), and the applicable jurisprudence. According to the LBP, there is nothing in Section 17 of RA
6657 which provides that capitalized income of a property can be used as a basis in determining
just compensation. Thus, when the SAC used the capitalized income of the properties as basis for
valuation, "it actually modified the valuation factors set forth by RA 6657."
 ISSUE: Are courts obliged to apply the DAR formula in cases where they are asked to
determine just compensation for property covered by RA 6657? - YES

 RULING:

Constitutional challenge to RA 6657

Shortly after the enactment of RA 6657, its constitutionality was challenged. Landowners
argued that entrusting to the DAR the manner of fixing just compensation violated judicial
prerogatives. This claim was unanimously rejected in our landmark holding in Association
of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian Reform (Association).

A reading of the Section 16(d) of the law will readily show that it does not suffer from the
arbitrariness that rendered the challenged decrees constitutionally objectionable. Although
the proceedings are described as summary, the landowner and other interested parties are
nevertheless allowed an opportunity to submit evidence on the real value of the property.
But more importantly, the determination of the just compensation by the DAR is not by any
means final and conclusive upon the landowner or any other interested party, for Section
16(f) clearly provides:

Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation.

The determination made by the DAR is only preliminary unless accepted by all parties
concerned. Otherwise, the courts of justice will still have the right to review with finality the
said determination in the exercise of what is admittedly a judicial function.

Controlling doctrines after Association

Landbank of the Philippines v. Banal (Banal)

o In determining just compensation, courts are obligated to apply both the compensation valuation
factors enumerated by the Congress under Section 17 of RA 6657, and the basic formula laid
down by the DAR.

Land Bank of the Philippines v. Celada (Celada)

o The formula, being an administrative regulation issued by the DAR pursuant to its rule-making
and subordinate legislation power under RA 6657, has the force and effect of law. Unless
declared invalid in a case where its validity is directly put in issue, courts must consider their use
and application.

Land Bank of the Philippines v. Yatco Agricultural Enterprises (Yatco)

o Courts, in the exercise of their judicial discretion, may relax the application of the formula to fit
the peculiar circumstances of a case. They must, however, clearly explain the reason for any
deviation; otherwise, they will be considered in grave abuse of discretion.
Ruling on the issue raised in the case of Alfonso

This Court ruled that the SAC's adoption of the Cuervo Report valuation constitutes
deviation from Section 17 and the prescribed formula is fairly evident.

Commissioner Chua employed a different formula, other than that set forth in DAR AO No.
5 (1998), to compute the valuation, While the DAR-issued formula generally uses the three
(3) traditional approaches to value, each with assigned weights, Commissioner Chua chose
to apply only two approaches, namely, the Market Data Approach (MDA) and the
Capitalized Income Approach (CIA) 107 and averaged the indications resulting from the
two approaches. He thereafter concluded that the result "reasonably represented the just
compensation (fair market value) of the land with productive coconut trees."

In addition, in his computation of the CNI factor, Commissioner Chua used, without any
explanation, a capitalization rate of eight percent (8%), instead of the twelve percent (12%)
rate provided under DAR AO No. 5 (1998).

As earlier explained, deviation from the strict application of the DAR formula is not
absolutely proscribed. For this reason, we find that the Court of Appeals erred in setting
aside the SAC's Decision on the mere fact of deviation from the prescribed legislative
standards and basic formula. Yatco teaches us that courts may, in the exercise of its
judicial discretion, relax the application of the DAR formula, subject only to the condition
that the reasons for said deviation be clearly explained.

The statement that the government's valuation is "unrealistically low," without more, is
insufficient to justify its deviation from Section 17 and the implementing DAR formula.
There is nothing in the SAC's Decision to show why it found Commissioner Chua's method
more appropriate for purposes of appraising the subject properties, apart from the fact that
his method yields a much higher (thus, in its view, "more realistic") result.

To this Court's mind, a reasoned explanation from the SAC to justify its deviation from the
foregoing guidelines is especially important considering that both the DAR and the LBP
were unable to find sales of comparable nature.

Considering the foregoing, we cannot but conclude that the SAC committed the very thing
cautioned about in Yatco, that is, "utter and blatant disregard of the factors spelled out by
the law and by the implementing rules." In this sense, we AFFIRM the Court of Appeals'
finding of grave abuse of discretion and order the REMAND of the case to the SAC for
computation of just compensation in accordance with this Court's ruling in Yatco.