THIRD DIVISION

G.R. No. 190520, May 30, 2016

LAND BANK OF THE PHILIPPINES, Petitioner, v. SPOUSES ANTONIO AND

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari filed by petitioner Land Bank of the Philippines
seeking to annul and set aside the Decision1 dated August 11, 2008 of the Court of Appeals (CA)
issued in CA-G.R. CV No. 00067 directing it to pay twelve percent (12%) interest per annum for
the delay in the payment of just compensation. Also assailed is the CA Resolution2 dated
December 1, 2009 denying reconsideration thereof.

Respondents-spouses Antonio and Carmen Avanceña were the registered owners of a parcel of
agricultural land situated at Sanghan, Cabadbaran, Agusan del Norte covered by Transfer
Certificate of Title No. RT-2937 containing an area of 205.0074 hectares. In 1988, respondents
spouses voluntarily offered to sell their land to the government under the Comprehensive
Agrarian Reform Program (CARP), which consisted of 160.2532 hectares of the land. In 1991,
petitioner Land Bank of the Philippines initially valued the subject lot at P1,877,516.09 based on
the guidelines prescribed in DAR Administrative Order No. 17, Series of 1989. Upon
recomputation in 1994 and based on DAR AO No. 6, Series of 1992, as amended, by DAR AO
No. 11, Series of 1994, the land was revalued at P3,337,672.78 but respondents rejected the
valuation. Petitioner deposited the difference in the cash portion between the revalued amount
and the initial valuation of P1,877,516.09 in trust for the respondents on July 24, 1996. The
parties brought the matter of valuation to the Department of Agrarian Reform Adjudication
Board (DARAB), Caraga Regional Office, which affirmed petitioner's second valuation.

Respondents-spouses filed with the Regional Trial Court, acting as a Special Agrarian Court
(SAC), a complaint for determination of just compensation, docketed as Civil Case No. 4507.
They prayed for a valuation of no less than P200,000.00 per hectare for the subject lot or in the
alternative, to appoint Commissioners to determine the just compensation; and that they be
allowed to withdraw the valuation amount that petitioner had deposited for them including the
earned interest, pending the court's final valuation. Petitioner filed its Answer alleging that the
valuation was computed based on the factors enumerated in Section 17 of Republic Act No.
(R.A.) 6657, the Comprehensive Agrarian Reform Law.

While the complaint was pending, petitioner made a reevaluation of the property using the
valuation prescribed by DAR AO 5, series of 1998 which yielded the amount of P9,057,180.32.

On March 29, 2000, the SAC issued its Decision,3 the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered directing the defendants Land
Bank of the Philippines (LBP) and the Department of Agrarian Reform (DAK) to pay plaintiffs
the following:

1. The sum of Twenty Million Four Hundred Seventy-Five Thousand, Seven Hundred Seventy-
Five (P20?475,775) Pesos for the 160.253 hectares |of| land with its improvements with six (6%)
percent legal interest thereon, less the provisional deposits from April 1991 until actually paid;

2. The sum of One Hundred Thousand (P100,000) Pesos, as Attorneys' fees;

3. The sum of One Hundred Thousand (P100,000) Pesos, litigation expenses;

4. All other claims and counterclaims are dismissed for lack of merit.

SO ORDERED.4 ChanRoblesVirtualawlibrary

Petitioner's motion for reconsideration was denied, hence it appealed the decision with the CA.
In the meantime, respondents spouses moved for the execution of the RTC decision pending
appeal5 which was granted in a Resolution6 dated October 2, 2000; thus, the writ of execution
was issued and implemented.

On August 11, 2008, the CA issued the assailed decision, the decretal portion of which reads:

WHEREFORE, in view of all the foregoing, the instant appeal is hereby GRANTED and the
assailed March 29, 2006 decision of the Regional Trial Court (RTC), 10th Judicial Region,
Branch 5, Butuan City, in Civil Case No. 4507, is hereby SET ASIDE. Consequently, this case is
remanded to the court a quo for the recomputation of just compensation. In determining the
valuation of the subject property, the factors provided under Section 17 of R.A. 6657 shall be
considered in accord with the formula prescribed in DAR Administrative Order No. 5, Series of
1998. Moreover, the just compensation due the [S]pouses Avancena should bear 12% interest per
annum from the time title to the property was transferred in the name of the government up to the
time that LBP deposited the amount of its valuation for the subject land under the account of the
appellees. The basis of the 12% interest would be the just compensation that would be
determined by the court a quo after remand of the instant case.

SO ORDERED.7 ChanRoblesVirtualawlibrary

Petitioner filed a motion for partial reconsideration arguing that the CA erred in awarding
interest at the rate of 12% p.a. reckoned from the time title to property was transferred in the
name of the government to the time petitioner deposited the valuation in July 1996. It argued that
upon receipt of the DAR order of deposit, it immediately deposited the cash portion of the initial
valuation of P1,877,516.09 on October 17, 1991, thus it never incurred delay as the title to the
subject lot was transferred in the name of the government only in December 1991.

On December 1, 2009, the CA issued its resolution denying the motion for reconsideration. It
found that nowhere in the records showed that petitioner made a deposit of P1,877,516.09 on
October 17,1991.

Dissatisfied, petitioner is now before us alleging that:

Petitioner claims that it deposited cash and bonds for the initial valuation of P1,877, 516.09 on
October 17, 1991. It attached in this petition a Certification9 dated October 22, 1991 which stated
that the cash and bonds due the respondents-spouses have been earmarked by petitioner for
respondents spouses on October 17, 1991. It argues that such deposit was the basis for the DAR
to take possession of the property and caused the issuance of the title in the name of the
government in December 1991, pursuant to Section 16 (e) of RA 6657, thus, it did not incur any
delay in depositing the amounts due the respondents-spouses which can validly justify the
payment of interest.

Petitioner cites the case of Apo Fruits Corporation et al, v. CA10 saying that we have
categorically declared therein that payment of interest for delay cannot be applied where there is
prompt and valid payment of just compensation as initially determined, as subsequently
determined after revaluation, and even if the amount was later on increased pursuant to the
court's judgment.

Petitioner further contends that despite the pendency of the case with the CA, the RTC issued a
Writ of Execution dated March 9, 2000 directing petitioner to pay the RTC's valuation of
P20,475,775.00 plus legal interest thereon at the rate of 6% per annum from April 1991 until
fully paid; that since such valuation was, however, set aside by the CA in its assailed decision,
there is now a huge possibility that the recomputed value will be much lower than
P20,475,775.00; that the advance payment it made amounting to P23,416,772.55 may have
exceeded the value of the subject land so that there is a need for respondents spouses to return
the difference between its valuation of P9,057,182.30 and the advance payment.

We are not persuaded.

The CA found that the title to respondents spouses' land was canceled and a new title was issued
in the name of the Republic of the Philippines in December 1991, but there was no showing that
petitioner had made payments prior to the taking of the land.

Thus, there was delay in the payment of just compensation which entitles the respondents
spouses to the payment of interest from the time the property was transferred in the name of the
government in December 1991 up to the time petitioner deposited the valuation in the account of
the respondents-spouses in July 1996. We agree with the CA that petitioner should pay interest
for the delay in the payment of just compensation. However, such payment of interest should be
computed up to the full payment of just compensation.

Petitioner argues that it had made a deposit on October 17, 1991, i.e., prior to the cancellation of
the title of the respondents-spouses, and submitted with us a Certification dated October 22, 1991
issued by the petitioner's Bonds Servicing Department stating that it had earmarked the sum of
PI,877,516.09 in cash and in LBP bonds as compensation for the parcel of lands covered by RT-
2937 in the name of respondents spouses on October 17, 1991 pursuant to RA 6657 through
voluntary offer. However, such certification was not among those that the petitioner offered as
evidence during the trial.11 More importantly, We had rejected the practice of earmarking funds
and opening trust accounts for purposes of effecting payment, hence, the law12 requires payment
of just compesation in cash or Land Bank of the Philippines (LBP) bonds, not by trust account.13

The certificate of title to respondents-spouses' land was canceled and a new certificate was issued
in the government's name in December 1991 without giving the former just compensation for
such taking. We have allowed the grant of interest in expropriation cases where there is delay in
the payment of just compensation.14 We recognize that the owner's loss is not only his property
but also its income-generating potential.15 Thus, when property is taken, full compensation of its
value must immediately be paid to achieve a fair exchange for the property and the potential
income lost.16 The rationale for imposing the interest is to compensate the landowners for the
income they would have made had they been properly compensated for their properties at the
time of the taking.17

In Republic v. CA,18 we held:

The constitutional limitation of "just compensation" is considered to be the sum equivalent to the
market value of the property, broadly described to be the price fixed by the seller in open market
in the usual and ordinary course of legal action and competition or the fair value of the property
as between one who receives, and one who desires to sell it, fixed at the time of the actual taking
by the government. Thus, if property is taken for public use before compensation is deposited
with the court having jurisdiction over the case, the final compensation must include interests on
its just value to be computed from the time the property is taken to the time when compensation
is actually paid or deposited with the court. In fine, between the taking of the property and the
actual payment, legal interests accrue in order to place the owner in a position as good as (but not
better than) the position he was in before the taking occurred.

The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal value
of the property to be computed from the time petitioner instituted condemnation proceedings and
"took'" the property in September 1969. This allowance of interest on the amount found to be the
value of the property as of the time of the taking computed, being an effective forbearance, at
12% per annum should help eliminate the issue of the constant fluctuation and inflation of the
value of the currency over time. Article 1250 of the Civil Code, providing that, in case of
extraordinary inflation or deflation, the value of the currency at the time of the establishment of
the obligation shall be the basis for the payment when no agreement to the contrary is stipulated,
has strict application only to contractual obligations. In other words, a contractual agreement is
needed for the effects of extraordinary inflation to be taken into account to alter the value of the
currency.19ChanRoblesVirtualawlibrary

Thus, the CA did not err in imposing interest on the just compensation which will be determined
after the remand of the case to the SAC. The interest should be computed from December 1991
up to the full payment of just compensation and not only up to the time petitioner deposited the
valuation in 1996 as the CA ruled. The concept of just compensation embraces not only the
correct determination of the amount to be paid to the owners of the land, but also payment within
a reasonable time from its taking.20 Without prompt payment, compensation cannot be
considered "just" inasmuch as the property owner is made to suffer the consequences of being
immediately deprived of his land while being made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss.21

The award of interest is imposed in the nature of damages for delay in payment which, in effect,
makes the obligation on the part of the government one of forbearance to ensure prompt payment
of the value of the land and limit the opportunity loss of the owner.22 The just compensation due
respondents-spouses shall earn legal interest at the rate of 12% per annum computed from the
time of taking in December 1991 until June 30, 2013.23 And from July 1, 2013 until full payment,
the interest will be at the new legal rate of 6% per annum, in accordance with the revisions
governing the rate of interest established by Bangko Sentral ng Pilipinas Monetary Board
Circular No. 799,24 Series of 2013.25 The amount which petitioner had already paid respondents-
spouses by virtue of the RTC's Order granting the issuance of the Writ of Execution dated
October 2, 2000 shall be deducted from the amount of the just compensation which will be
awarded after the remand of this case.

Petitioner's reliance on our Third Division's December 19, 2007 Resolution in the case of Apo
Fruits Corporation v. CA26 wherein we declared that the payment of interest for the delay of
payment cannot be applied where there is prompt and valid payment of just compensation as
initially determined, even if the amount of just compensation was later on increased pursuant to
the Court's judgment, is misplaced. We found then that as Land Bank had deposited pertinent
amounts in favor of the landowners within fourteen months after the latter filed their complaint
for determination of just compensation with the SAC, there was no unreasonable delay in the
payment of just compensation which entitled the landowners to the payment of 12% interest per
annum on the unpaid just compensation.

However, such resolution was subsequenlty reversed and set aside in our En Bane Resolution
dated October 12, 2010 where we granted the landowners' motion for reconsideration. We
ordered the Land Bank to pay the landowners an interest at the rate of 12% per annum on the
unpaid balance of the just compensation, computed from the date the Government took the
properties on December 9, 1996, until the respondent Land Bank fully paid the balance of the
principal amount on May 9, 2008. We ruled that notwithstanding that the Land Bank had
immediately paid the remaining unpaid balance of the just compensation as finally determined
by the court, however, 12 long years had passed before the landowners were fully paid. Thus, the
landowners were entitled to legal interest from the time of the taking of the property until the
actual payment in order to place the owner in a position as good as, but not better than, the
position he was in before the taking occurred.27 The imposition of such interest was to
compensate the landowners for the income they would have made had they been properly
compensated for their properties at the time of the taking.28 Thus, we held:

Let it be remembered that shorn of its eminent domain and social justice aspects, what the
agrarian land reform program involves is the purchase by the government, through the LBP, of
agricultural lands for sale and distribution to farmers. As a purchase, it involves an exchange of
values the landholdings in exchange for the LBPs payment. In determining the just compensation
for this exchange, however, the measure to be borne in mind is not the taker's gain but the
owner's loss since what is involved is the takeover of private property under the States coercive
power. As mentioned above, in the value-for-value exchange in an eminent domain situation, the
State must ensure that the individual whose property is taken is not shortchanged and must hence
carry the burden of showing that the just compensation requirement of the Bill of Rights is
satisfied.

The owner's loss, of course, is not only his property but also its income-generating potential.
Thus, when property is taken, lull compensation of its value must immediately be paid to achieve
a fair exchange for the property and the potential income lost. The just compensation is made
available to the property owner so that he may derive income from this compensation, in the
same manner that he would have derived income from his expropriated property. If full
compensation is not paid for property taken, then the State must make up for the shortfall in the
earning potential immediately lost due to the taking, and the absence of replacement property
from which income can be derived; interest on the unpaid compensation becomes due as
compliance with the constitutional mandate on eminent domain and as a basic measure of
fairness.29

As in the Apo case, respondents-spouses voluntarily offered to sell their land pursuant to the
government's land reform program, however, the valuation made by the LBP on the land was
rejected by the former for being undervalued. Respondents-spouses had to resort to the filing of
the case with the RTC, sitting as SAC, for the determination of just compensation of their land. It
has already been 25 years but respondents-spouses have not received the full amount of the just
compensation due them, and further delay can be expected with the remand of the case to the
SAC for the recomputation of the just compensation. Thus, the long delay entitles them to the
payment of interest to compensate for the loss of income due to the taking.30

Petitioner's claim for reimbursement of the amount it had already paid to respondents-spouses by
virtue of the writ of execution pending appeal then issued by the SAC is not meritorious. The
recomputed amount of just compensation due the respondents-spouses shall only be determined
after the remand of the case to the SAC. It would only be that time which would establish
whether the payment made to them was more than the just compensation that they are entitled to.

There is also no basis for petitioner to claim that respondents-spouses are merely entitled to
provisionally receive its valuation of P9,057,182.30 pending the final determination of the just
compensation. Notably, the CA's decision rejected petitioner's valuation as well, thus:

It has been stated in a number of cases that in computing the just compensation for expropriation
proceedings, it is the value of the land at the time of the taking which should be taken into
consideration. This being so, then in determining the value of the land for the payment of just
compensation, the time of taking should be the basis.

In the case at bar, the court a quo failed to consider the value and the character of the land at the
time it was taken by the government in 1991. Instead, the former assessed the market value of
the idle portion of the subject lot as a riceland. Yet, per LBP's Field Investigation Report (FIR)
prepared in 1990, the subject lot was not yet devoted to rice or corn at that time, although its idle
portion was classified as suitable for said crops. Also, in computing the value of the land, the
court a quo considered the land's appreciation value from the time of taking in 1991 up to the
filing of the case in 1997 and of appellee's potential profit from the land's suitability to rice and
corn, which We find to be contrary to the settled criterion in determining just compensation.
Hence erroneous.

The foregoing pronouncements do not, however, mean that We favor LBP's valuation of
P9,057,10.32 for the subject lot. The same is found to be non-reflective of just compensation
because the Tax Declaration used by LBP in fixing the market value of the land in its initial
valuation for the year 1986, as indicated in the FIR. Additionally, no evidence was adduced to
show that LBP used the correct tax declaration (TD), which should be the 1991 TD, in fixing the
market value in its latest computation of the land's valuation.

Notably, LBP's initial valuation of the land in 1991 was P1,877,516.09 and became
P3,337,672.78 after recomputation in 1994, pursuant to DAR AO No. 11, Series of 1994. During
the pendency of the case in court, DAR AO No. 5 series of 1998 was issued; hence, LBP
accordingly recomputed its valuation and came up with the amount of P9,057,180.32 (the
amount of P8,955,269.16 constitutes the value of the land while PI 01,913.14 was the value of
the legal easement).

Albeit LBP claims to have faithfully observed and applied the prescribed formula in DAR AO
No. 5, series of 1998, in its recomputation of the land's valuation, it adduced no evidence, like
the official computation sheets, to show that the latest valuation of the land was indeed arrived at
using the prescribed formula and that the correct documents indicating the factors enumerated in
Section 17 of RA 6657 were actually considered. Hence, We cannot accept LBP's latest
valuation as well.

Consequently, We deem it proper to remand this case to the court a quo for a recomputation of
the just compensation, x x x31

Therefore, until the SAC had finally determined the just compensation due the respondents-
spouses upon remand of the case, it could not be said that the payment made by virtue of the writ
of execution pending appeal had exceeded the value of the subject property.

Moreover, assuming arguendo that the amount paid by virtue of the execution pending appeal
would be more than the recomputed amount of the just compensation, any excess amount should
be returned to petitioner as provided under Section 5, Rule 39 of the Rules of Court, to wit:

Section 5. Effect of reversal of executed judgment. - Where the executed judgment is reversed
totally or partially, or annulled, on appeal or otherwise, the trial court may, on motion, issue such
orders of restitution or reparation of damages as equity and justice may warrant under the
circumstances.

WHEREFORE, the dispositive portion of the Decision dated August 11, 2008 of the Court of
Appeals in CA-G.R. CV No. 00067 is hereby modified and shall now read as follows:

WHEREFORE, in view of all the foregoing, the instant appeal is hereby GRANTED and the
assailed March 29, 2006 decision of the Regional Trial Court (RTC), 10lh Judicial Region,
Branch 5, Butuan City, in Civil Case No. 4507, is hereby SET ASIDE. Consequently, this case is
remanded to the court a quo for the recomputation of just compensation. The interest on the
recomputed just compensation should be computed from December 1991 up to the payment of
the lull amount of just compensation less whatever amounts received by the respondents-
spouses.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Perez, and Reyes, JJ.