Just Compensation for Land Acquired Under P.D. 27: Why R.A. 6657 and DAR A.O. 5 Govern the Valuation

The government's agrarian reform program took land from landowners long before it paid them. When payment is delayed, a question arises: which valuation law applies — the old decree in force when the land was taken, or the newer statute in force when compensation is finally fixed? In Land Bank of the Philippines v. Rizalina Gustilo Barrido and Heirs of Romeo Barrido (G.R. No. 183688, August 18, 2010), the Supreme Court answered clearly, and reminded trial courts that they cannot simply invent their own valuation formula.

The land and the taking

Rizalina Gustilo Barrido and the heirs of Romeo Barrido owned an 89,204-square-meter parcel in Sara, Iloilo, covered by Original Certificate of Title No. 0-6318. On April 30, 2003, the government took 43,461 square meters of it for distribution to farmer-beneficiaries under the Land Reform Program.

The Land Bank of the Philippines offered P60,385.49 as just compensation. The landowners rejected the offer and went straight to the Regional Trial Court, Branch 34, Iloilo City, asking it to determine just compensation judicially. Their case was docketed as Civil Case No. 04-28093.

The competing formulas

Land Bank and the Department of Agrarian Reform argued that the valuation was correct because it followed the formula under Presidential Decree No. 27, as supplemented by Executive Order No. 228:

Land Value = Average Gross Production x 2.5 x Government Support Price

The landowners, and eventually the courts, took a different view.

What the RTC and CA did

The RTC fixed just compensation at P94,797.09 per hectare, ordering Land Bank to pay P411,997.63 for the 4.3461 hectares taken, plus 12% interest per annum from March 21, 2003 until full payment.

How did the RTC reach that figure? It took the average of two numbers: the amount DAR computed using the E.O. 228 formula, and the property's market value of P175,700.00 per hectare. It also awarded 12% interest as damages for the delay in payment. The Court of Appeals affirmed the RTC in full, prompting Land Bank to elevate the case to the Supreme Court.

The ruling: R.A. 6657 controls, and the DAR formula must be followed

The Supreme Court reversed the Court of Appeals and remanded the case. Three points stand out.

First, the applicable law depends on when compensation was settled — not when the land was taken. The Court held that if just compensation was not settled before the passage of Republic Act No. 6657, it must be computed under that law, even if the property was acquired under P.D. 27. P.D. 27 and E.O. 228 have only suppletory effect. Section 17 of R.A. 6657 is the principal basis of the computation.

Second, Section 17 has been translated into a specific formula. That formula appears in DAR Administrative Order No. 5, series of 1998, the Revised Rules and Regulations Governing the Valuation of Lands Voluntarily Offered or Compulsorily Acquired Pursuant to R.A. 6657. The basic formula is:

LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)

where LV is land value, CNI is capitalized net income, CS is comparable sales, and MV is market value per tax declaration. The administrative order provides fallback formulas when one or more factors are absent — for example, when only market value is available, the land value is computed as MV x 2, subject to a cap tied to the lowest approved land value in the same estate, barangay, or municipality.

Third, courts must apply that formula. Fixing just compensation is a judicial function vested in the RTC sitting as a Special Agrarian Court, but that discretion is not unlimited. A judge cannot disregard the factors identified by law and the implementing rules. Unless an administrative order is declared invalid, courts have no option but to apply it.

The RTC's approach — averaging the DAR valuation with the market value in the tax declaration — was a departure from the law and DAR A.O. No. 5. Because the RTC used a different formula and ignored the Section 17 factors, the Court remanded the case to Branch 34 of the RTC of Iloilo City to determine just compensation strictly under the DAR A.O. 5 formula.

Practical takeaways

• Timing matters more than the date of taking. If just compensation was not settled before R.A. 6657 took effect, the valuation follows R.A. 6657, even for land acquired under P.D. 27. P.D. 27 and E.O. 228 apply only in a suppletory role.
• Section 17 of R.A. 6657 supplies the factors; DAR A.O. No. 5, series of 1998 supplies the formula. Courts must use the formula, including its fallback variants when a factor such as comparable sales is unavailable.
• Trial courts cannot substitute their own valuation method. Averaging the DAR computation with market value, or otherwise departing from the prescribed formula, is reversible error.
• Landowners and Land Bank should build their evidence around the formula's inputs — capitalized net income, comparable sales, and market value per tax declaration — because these drive the final award.
• A remand is a real risk. Where the trial court used the wrong formula, the case goes back for recomputation rather than being decided outright, which means further delay for both sides.

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