CASE DIGEST: Land Bank v. Gallego

G.R. No. 173226: July 29, 2013




Respondents Manuel O. Gallego, Jr., Joseph L. Gallego and Christopher L. Gallego are the co-owners of several parcels of agricultural lands located in Barangay Sta. Rita and Barangay Concepcion in Cabiao, Nueva Ecija. Sometime in 1972, the DAR placed a portion of the property under the coverage of Presidential Decree No. 27 (P.D. No. 27). However, the DAR and respondents failed to agree on the amount of just compensation, prompting respondents to file on 10 December 1998 a petition before the RTC of Cabanatuan City.

In a Supplemental Pre-Trial Order, the trial court stated that in view of the parties agreement that the property was irrigated and had an area of 120 hectares, the only factual issue to be resolved would be the correct Average Gross Production on which just compensation would be fixed.

Only petitioner LBP appealed from the trial courts Decision. According to petitioner LBP, the trial court erred in applying values that had no basis in law instead of adopting the Average Gross Production established by the Barangay Committee on Land Production under DAR Circular No. 26, series of 1973, and the mandated Government Support Price ofP35 per cavan of palay under Section 2 of Executive Order (E.O.) No. 228.

The appellate court agreed that the values applied by the trial court in fixing just compensation had no legal basis because the formula under P.D. No. 27 and E.O. No. 228 mandated a Government Support Price ofP35.00 per cavan of palay. Petitioner LBP sought reconsideration but was denied in a Resolution dated 23 June 2006. Hence, the instant petition. The SC reversed the CA decision and remanded the case to the CA for determination of just compensation. Hence the CA submitted its report and recommended two solutions for determining just compensation.

In the first alternative, the CA recommended the use of the alternate formula "LV=(CS x 0.9) + (MV x 0.1)" as proposed by the respondents, for a just compensation of Ninety-Five Million, Three Hundred Fifty Thousand, Forty-Nine Pesos and 27/100 (P95,350,049.27). In the second alternative, the CA recommended the use of the basic formula "LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)" as provided under Item II.A. of DAR A.O. No. 05-98, for a just compensation of Fifty Million, Four Hundred Thirty-One Thousand, Five Hundred Six Pesos (P50,431,506.00).

ISSUE: Which among the two alternative methods is correct

HELD: Second Computation

Political Law- to be "just," the compensation must be real, substantial, full and ample.

LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)
Where: LV = Land Value
CNI = Capitalized Net Income
CS = Comparable Sales
MV = Market Value per Tax Declaration

After consideration of the record and of the parties respective arguments, we adopt the second alternative recommended by the CA using the basic formula "LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)." We, however, arrived at the slightly different amount of Fifty Million, Four Hundred Thirty-Two Thousand, Sixty-Three Pesos and 89/100 (P50,432,063.89).
We find that the second alternative presents a more accurate formula and computation in the determination of the just compensation due the respondents for their property. As pointed out earlier, DAR A.O. No. 05-98 provides the basic formula "LV = (CNI x 0.6) + (CS x 0.3) + (MV x 0.1)" for valuating lands acquired pursuant to the governments agrarian reform program. In cases where not all three factors of CNI, CS and MV are present, relevant and applicable, the same regulation provides three alternate formulae that can be used to compute for just compensation.

In the present case, we deem all three factors of CNI, CS and MV "relevant and applicable" for, as the CA observed, they substantially complied with the prescribed formula. In disregarding the computation proposed by the LBP, the CA found inapplicable the data necessary to compute the CNI because they pertained to different locations and calendar years.

Nevertheless, in offering the second alternative which used the prescribed basic formula, the CA essentially pointed out that the data necessary for determining the CS were equally inapplicable as they did not comply with the requirements of Items II.C.2.b and II.C.2.c of DAR A.O. No. 05-98. If we were to strictly apply the formula laid down in DAR A.O. No. 05-98 and disregard both the CNI and CS factors to be equally flawed, then the only present, relevant and applicable factor left is MV, which, when used following the third alternate formula "LV = MV x 2," will significantly reduce the just compensation to an absurd amount. Clearly, we cannot support this, as our agrarian reform laws never intended to deprive landowners of their property without just compensation. Just compensation refers to the full and fair equivalent of the property taken from the owner. In several cases, we emphasized that to be "just," the compensation must be real, substantial, full and ample.