Just Compensation in Agrarian Reform: When Land Exceeds the Covered Area

The Comprehensive Agrarian Reform Program (CARP) seeks to distribute agricultural lands to farmer-beneficiaries, but not every parcel of land falls under its coverage. In Land Bank of the Philippines v. Paramount Finance Corporation (G.R. No. 217137, January 16, 2023), the Supreme Court clarified two important points: lands with an 18% slope or more are exempt from compulsory coverage, and courts have the discretion to use alternative methods in computing just compensation when the standard formula cannot be applied.

The Facts of the Case

Paramount Finance Corporation acquired a 75-hectare property in Mati, Davao Oriental through foreclosure. In 1991, the property came under CARP's compulsory coverage. The Land Bank of the Philippines (LBP) surveyed the property and found that 15 hectares had a slope of 18 degrees or more. LBP computed just compensation for only 60 hectares, setting the amount at P642,770.10.

However, the Department of Agrarian Reform (DAR) later cancelled the original title and issued a new one covering all 75 hectares to the farmer-beneficiaries. When Paramount Finance discovered the taking, it filed a petition questioning the amount of just compensation.

The Special Agrarian Court (SAC) ruled that just compensation should cover all 75 hectares, adopting a commissioner's valuation of P1,193,327.00. The Court of Appeals affirmed. Both LBP and Paramount Finance appealed to the Supreme Court.

The Issue

The central question was whether the lower courts properly determined the property's value for just compensation, particularly whether the 15-hectare sloping portion should have been included in the computation.

The Ruling

The Supreme Court partly granted LBP's petition. It held that the lower courts erred in computing just compensation for all 75 hectares.

Exclusion of Sloping Lands. Under Section 10 of Republic Act No. 6657, lands with an 18% slope and over are exempt from compulsory coverage unless already developed. Since the 15-hectare portion had an 18-degree slope, it fell within this exemption. The Court applied the ruling in Land Bank v. Spouses Montalvan (689 Phil. 641 [2012]), which held that when the government erroneously takes land beyond what CARP covers, the excluded portion must be returned to the owner.

The Court ordered the cancellation of the title over the entire property and directed the issuance of two new titles: one covering 60 hectares for the farmer-beneficiaries, and another covering the 15-hectare portion to be returned to Paramount Finance. The costs of re-titling and re-surveying were charged to DAR.

Alternative Valuation Methods. The Court affirmed that the SAC correctly used an alternative method of computing just compensation. The "basic formula" under DAR Administrative Order No. 05-98 requires three factors: capitalized net income, comparable sales, and market value per tax declaration. Here, the parties failed to prove two of these factors.

Citing Apo Fruits Corporation v. Court of Appeals (565 Phil. 418 [2007]) and Land Bank v. Manzano (824 Phil. 339 [2018]), the Court reiterated that the factors in Section 17 of Republic Act No. 6657 serve as guideposts, not rigid formulas. The SAC has the discretion to deviate from the DAR formula when warranted, provided the deviation is supported by evidence on record.

Valuation at the Time of Taking. However, the Court found a significant error: the lower courts valued the property based on the commissioners' findings in 2004, not at the time of taking in 1994 when the Certificates of Land Ownership Award were issued. Citing Department of Agrarian Reform v. Beriña (738 Phil. 605 [2014]), the Court stressed that just compensation must be valued at the time of taking—when the landowner was deprived of the use and benefit of the property.

The Court remanded the case to the SAC for further reception of evidence on just compensation, applying the amended Section 17 of Republic Act No. 6657 as amended by Republic Act No. 9700, and valuing the property at the time of taking.

Practical Takeaways

• Sloping lands are presumptively exempt from CARP. If a portion of a property has an 18% slope or more, it should be excluded from compulsory coverage unless it was already developed.
• The government cannot take more than what the law allows. When DAR erroneously includes exempt land in a title transfer, the excluded portion must be returned to the owner, with costs charged to DAR.
• Courts are not bound by DAR formulas. The Special Agrarian Court may use alternative valuation methods when the factors for the basic formula are absent, but any deviation must be justified by evidence.
• Valuation timing matters. Just compensation is determined at the time of taking, not at the time of trial or when commissioners are appointed.
• Landowners may claim damages. Those whose exempt lands were wrongfully taken may seek damages in appropriate proceedings.

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