Agrarian Reform Land Classification and Just Compensation for Expropriated Lands

The Supreme Court recently clarified two important points in agrarian reform expropriation: how to treat lands with steep slopes that should be excluded from compulsory coverage, and how courts may compute just compensation when the standard formula cannot be applied. The ruling in Land Bank of the Philippines v. Paramount Finance Corporation (G.R. No. 217137, January 16, 2023) provides guidance for landowners, farmer-beneficiaries, and government agencies involved in the Comprehensive Agrarian Reform Program (CARP).

The Facts of the Case

The case involved a 75-hectare property in Mati, Davao Oriental. The original owner mortgaged the land to Paramount Finance Corporation, which later acquired it through foreclosure. In 1991, the property was placed under CARP coverage.

When the Land Bank of the Philippines surveyed the property, it found that 15 hectares had a slope of 18 degrees or greater. Because of this, the Land Bank computed just compensation based only on the remaining 60 hectares. However, when the Department of Agrarian Reform issued titles to farmer-beneficiaries, the new title covered all 75 hectares.

Paramount Finance later discovered the taking and contested the amount of just compensation before the Regional Trial Court sitting as a Special Agrarian Court.

The Issue

The central question was whether the lower courts properly determined the value of the property for just compensation. Two sub-issues emerged: first, whether the 15-hectare sloping portion should have been excluded from coverage; and second, whether the courts correctly used an alternative method of valuation.

The Ruling on Excluded Lands

The Supreme Court held that the lower courts erred in ordering payment for the entire 75 hectares. Under Section 10 of Republic Act No. 6657, lands with an 18% slope or more are exempt from compulsory coverage unless already developed. Since the 15-hectare portion had such a slope, it should not have been included in the agrarian reform program.

The Court applied the same remedy used in Land Bank v. Spouses Montalvan (689 Phil. 641 [2012]): the excluded portion must be returned to the landowner, with the costs of re-titling and re-surveying charged to the Department of Agrarian Reform. The landowner may also seek damages for the wrongful titling of the excluded property.

The Ruling on Just Compensation

On valuation, the Court affirmed the lower courts' use of an alternative method. Section 17 of Republic Act No. 6657 lists factors that must be considered in determining just compensation, and the Department of Agrarian Reform translates these into a basic formula through administrative issuances.

However, the Court reiterated that this formula is not mandatory in all cases. Citing Apo Fruits Corporation v. Court of Appeals (565 Phil. 418 [2007]), the Court explained that the basic formula applies only when all three required factors—capitalized net income, comparable sales, and market value per tax declaration—are present, relevant, and applicable. When evidence for some factors is unavailable, the Special Agrarian Court may use alternative methods, provided the deviation is explained and grounded on the record.

Here, the parties could not prove comparable sales or market value based on tax declarations. The Special Agrarian Court therefore adopted a commissioner's valuation based on the property's actual condition, including its standing crops. This was a proper exercise of judicial discretion.

The Error on Valuation Date

The Court, however, found one significant error. The lower courts valued the property based on conditions in 2004, when the commissioners were appointed, rather than at the time of taking in 1994. Just compensation must be valued at the time the landowner was deprived of the property—typically when title is transferred to the Republic.

The Court remanded the case for further proceedings, directing the Special Agrarian Court to value the property as of the time of taking, using evidence of values prevalent for like agricultural lands at that time. The Court also noted that the amended Section 17 under Republic Act No. 9700 should govern the new computation.

Practical Takeaways

• Sloping lands are generally exempt from CARP. Lands with an 18% slope or more are excluded from compulsory coverage unless already developed. If the government mistakenly takes such land, it must be returned to the owner.
• The basic DAR formula is not absolute. Courts may use alternative valuation methods when the factors required by the standard formula cannot be established, as long as the choice is explained and supported by evidence.
• Valuation date matters. Just compensation is based on the property's value at the time of taking, not at the time of later appraisal or court proceedings.
• Remedies for wrongful titling. When excluded lands are erroneously included in titles issued to farmer-beneficiaries, the Department of Agrarian Reform bears the costs of correcting the titles, and the landowner may claim damages.
• Judicial discretion is protected. The Special Agrarian Court has the final say on just compensation and is not strictly bound by administrative formulas, though it must consider the statutory factors.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.