Fairness in Farmlands: How Courts Determine Just Compensation in Agrarian Reform

The Philippine Supreme Court recently settled a decades-old dispute over the value of farmland placed under the Comprehensive Agrarian Reform Program (CARP), clarifying both how courts should compute just compensation and when landowners are entitled to legal interest on unpaid balances. The ruling in Yared v. Land Bank of the Philippines (G.R. No. 213945, January 24, 2018) provides essential guidance for landowners and practitioners navigating the often lengthy process of agrarian reform valuation.

The Facts of the Case

The petitioners owned a 134.895-hectare parcel of land in Bais City, Negros Oriental. In 1996, the property was placed under CARP's compulsory acquisition scheme under Republic Act No. 6657. The Land Bank of the Philippines (LBP) initially valued the property at P7,067,426.91 and deposited this amount to the landowners' account.

Unsatisfied with the valuation, the landowners brought their case to the Department of Agrarian Reform Adjudication Board (DARAB). In 2001, DARAB ordered LBP to recompute the valuation. LBP submitted a re-evaluation of P11,366,366.15, but DARAB took no action for seven years. When it finally acted in 2008, DARAB rejected the recomputed amount and reverted to the original valuation of P7,067,426.91.

The landowners then filed a petition before the Regional Trial Court, sitting as a Special Agrarian Court, to determine just compensation.

The Issue

The central question before the Supreme Court was whether legal interest should be imposed on the unpaid balance of just compensation, reckoned from the time of taking until full payment.

The Court's Ruling

The Supreme Court ruled in favor of the landowners, directing LBP to pay the remaining balance of P11,537,478.00 with legal interest at 12% per annum from September 25, 1996 (the date of taking) until June 30, 2013, and at 6% per annum from July 1, 2013 until full payment.

Just Compensation Requires Prompt Payment

The Court reiterated that just compensation is "the full and fair equivalent of the property which must be paid to the owners of the land within a reasonable time from its taking." Without prompt payment, compensation cannot be considered "just" because the property owner suffers the consequences of being deprived of land while waiting years for payment.

Interest Compensates for Lost Income Potential

The Court emphasized that a landowner's loss is not limited to the property itself but includes its income-generating potential. Interest on unpaid compensation from the time of taking until full payment serves to place the owner in as good a position as before the taking occurred. In this case, nearly 21 years had passed since the taking—a lost opportunity too substantial to ignore.

The Applicable Interest Rates

Following established jurisprudence and the amendment introduced by Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799 (2013), the Court applied a two-tiered interest rate: 12% per annum from the time of taking until June 30, 2013, and 6% per annum from July 1, 2013 until full payment.

Practical Takeaways

• Just compensation is not merely the fair market value of the land—it includes payment in full without delay, plus interest that accounts for the land's income-generating potential lost during the waiting period.
• Legal interest on unpaid just compensation is the rule, not the exception. Once the government takes property, delay in full payment triggers interest from the date of taking, not from the date of judicial determination.
• The interest rate depends on when the delay occurred. For periods before July 1, 2013, the rate is 12% per annum; after that date, it drops to 6% per annum, per BSP-MB Circular No. 799.
• An initial deposit does not stop interest from accruing on the difference. Even if LBP promptly deposits a partial valuation, interest runs on the unpaid balance between the initial deposit and the final judicially determined amount.
• Landowners should track the timeline. Given that interest accrues from the date of taking, documentary evidence of that date and all subsequent valuation proceedings is crucial to a claim.

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