Just Compensation Under CARP: Fair Market Value and Timely Payment Rules

The Philippine Supreme Court recently clarified the rules on determining just compensation for agricultural lands placed under the Comprehensive Agrarian Reform Program (CARP). In Land Bank of the Philippines v. Ma. Aurora [Rita] Del Rosario and Irene Del Rosario (G.R. No. 210105, September 2, 2019), the Court settled two important questions: what valuation factors apply when computing just compensation, and when legal interest begins to run on unpaid balances. The ruling provides clear guidance for landowners and agrarian reform beneficiaries alike.

The Facts of the Case

The respondents owned a 39.1248-hectare agricultural land in Ligao City, Albay. In 2001, the property was placed under CARP coverage pursuant to Republic Act No. 6657. The Land Bank of the Philippines (LBP) appraised the property at Php34,994.36 per hectare based on the formula under DAR Administrative Order No. 5, s. of 1998, and offered Php1,172,369.21 as just compensation. The respondents rejected the offer.

The Provincial Agrarian Reform Adjudicator later fixed just compensation at Php6,766,000.00. The LBP then filed a petition before the Regional Trial Court, sitting as a Special Agrarian Court. While the case was pending, Congress enacted Republic Act No. 9700 (the CARPER Law) in 2009, which amended RA 6657 and added new factors for determining just compensation, including the value of standing crops and 70% of the BIR zonal valuation.

The trial court applied the new law and fixed just compensation at Php3,829,514.29. The Court of Appeals modified this to Php2,176,571.58. Both parties appealed to the Supreme Court.

The Issue

The central issue was whether the Court of Appeals erred in computing the amount of just compensation and in imposing twelve percent (12%) interest per annum on the unpaid balance.

The Ruling: Time of Taking Determines the Applicable Law

The Supreme Court held that just compensation must be based on the prevailing values at the time of taking, not at the time of judgment. The Court considered the date of transfer of the property to the name of the Republic on November 26, 2001 as the time of taking, since this was when the landowners were deprived of their property.

Because the taking occurred in 2001, the Court ruled that RA 6657, prior to its amendment by RA 9700, should govern the case. The new valuation methods introduced by RA 9700 cannot be given retroactive effect to cover properties taken before its enactment.

The Correct Valuation Formula

Under DAR AO No. 5, s. of 1998, which was in force at the time of taking, just compensation is computed using this basic formula:

Land Value = (Capitalized Net Income x 0.9) + (Market Value x 0.1)

The Capitalized Net Income is computed using the Annual Gross Production, the Selling Price, the Net Income Rate, and a Capitalization Rate of 12%.

The Court emphasized that the Selling Price component must be based on the average of the latest available 12-months' selling prices prior to the date of receipt of the Claim Folder by the LBP. In this case, that meant using the 2001 average farm gate price of copra at Php688.75 per 100 kilos, not the six-year average from 1998-2003 that the Court of Appeals had used. Using data from years after the taking contradicts the doctrine that just compensation should be based on the value of the land at the time of taking.

Applying the correct formula, the Court fixed just compensation at Php1,310,563.37. Since the LBP had already paid Php1,172,369.21, the balance due was Php138,194.16.

Interest on Delayed Payment

The Court also ruled on the interest due on the unpaid balance. While the LBP had timely paid the initial valuation, it was nonetheless guilty of delay concerning the balance. The right to just compensation includes the right to be paid on time; interest compensates property owners for the income they would have earned had they been paid in full at the time of taking.

The balance of Php138,194.16 earned twelve percent (12%) interest per annum from the time of taking on November 26, 2001 until June 30, 2013. From July 1, 2013, until full payment, the balance earns interest at the new legal rate of six percent (6%) per annum, consistent with the ruling in Nacar v. Gallery Frames.

Practical Takeaways

• Time of taking is crucial. The applicable law and valuation rules are those in effect when the landowner was deprived of the property, typically when title is transferred to the Republic, not when the case is decided.
• Use the correct selling price period. The selling price component in the DAR formula must reflect the 12-month average immediately preceding the receipt of the Claim Folder by the LBP, not a longer multi-year average.
• Legal easements reduce compensable area. Non-compensable legal easements are properly deducted from the total land area before computing just compensation.
• Interest accrues on unpaid balances. Landowners are entitled to legal interest on any unpaid balance of just compensation, reckoned from the time of taking until full payment, at 12% per annum before July 1, 2013, and 6% per annum thereafter.
• New laws are not retroactive. Amendments to valuation rules, such as those introduced by RA 9700, do not apply to properties already taken before their enactment.

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