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- versus - VELASCO, JR.,



November 17, 2010



This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure
filed by Petitioner Land Bank of the Philippines (LBP) assailing the Decision1 of the Court of
Appeals dated 9 October 2007 in CA G.R. SP No. 87463, ordering the payment by LBP of just
compensation and interest in favor of respondents Esther Anson Rivera, Antonio G. Anson and
Cesar G. Anson, and at the same time directed LBP to pay the costs of suit. Likewise assailed is
the Resolution2 of the Court of Appeals dated 18 March 2008 denying the Motion for
Reconsideration of LBP.3

The respondents are the co-owners of a parcel of agricultural land embraced by Original
Certificate of Title No. P-082, and later transferred in their names under Transfer Certificate of
Title No. T-95690 that was placed under the coverage of Operation Land Transfer pursuant to
Presidential Decree No. 27 in 1972. Only 18.8704 hectares of the total are of 20.5254 hectares
were subject of the coverage.

After the Department of Agrarian Reform (DAR) directed payment, LBP approved the
payment of P265,494.20, exclusive of the advance payments made in the form of lease rental
amounting to P75,415.88 but inclusive of 6% increment of P191,876.99 pursuant to DAR
Administrative Order No. 13, series of 1994.4

On 1 December 1994, the respondents instituted Civil Case No. 94-03 for determination
and payment of just compensation before the Regional Trial Court (RTC), Branch 3 of Legaspi City,5
claiming that the landholding involved was irrigated with two cropping seasons a year with an

* Per Special Order No. 913, Associate Justice Diosdado M. Peralta is designated as additional member in place of Associate Justice
Mariano C. Del Castillo who is on official leave.
Penned by Associate Justice Lucas P. Bersamin (now a member of this Court), with Associate Justices Portia Alio Hormachuelos
and Estela M. Perlas-Bernabe, concurring. Rollo, pp. 50-62.
Id. at 82-83.
Id. at 7.
Memorandum of the Petitioner.
Rollo, p. 139.
average gross production per season of 100 cavans of 50 kilos/hectare, equivalent of 200
cavans/year/hectare; and that the fair market value of the property was not less that
P130,000.00/hectare, or P2,668,302.00 for the entire landholding of 20.5254 hectares.

LBP filed its answer,6 stating that rice and corn lands placed under the coverage of
Presidential Decree No. 277 were governed and valued in accordance with the provisions of
Executive Order No. 2288 as implemented by DAR Administrative Order No. 2, Series of 1987 and
other statutes and administrative issuances; that the administrative valuation of lands covered
by Presidential Decree No. 27 and Executive Order No. 228 rested solely in DAR and LBP was the
only financing arm; that the funds that LBP would use to pay compensation were public funds to
be disbursed only in accordance with existing laws and regulations; that the supporting
documents were not yet received by LBP; and that the constitutionality of Presidential Decree No.
27 and Executive Order No. 228 was already settled.

On 6 October 2004, the RTC rendered its decision, holding:

ACCORDINGLY, the just compensation of the land partly covered by TCT No. T-95690 is fixed
at Php1,297,710.63. Land Bank of the Philippines is hereby ordered to pay Esther Anson, Cesar
Anson and Antonio Anson the aforesaid value of the land, plus interest of 12% per annum or
Php194.36 per day effective October 7, 2004, until the value is fully paid, in cash or in bond or in
any other mode of payment at the option of the landowners in accordance with Sec. 18, RA 6657.9

Id. at 146.
Entitled, Decreeing The Emancipation Of Tenants From The Bondage Of The Soil Transferring To Them The Ownership Of The
Land They Till And Providing The Instruments And Mechanism Therefor.
Declaring full land ownership to qualified farmer beneficiaries covered by Presidential Decree No. 27. Determining the value of
remaining unvalued rice and corn lands subject to Presidential Decree No. 27 and providing for the manner of payment by the
farmer beneficiary and modes of compensation to the landowners.
Id. at 122.
LBP filed a Motion for Reconsideration10 which the RTC denied in its Order dated 29
October 2004.11

LBP next filed a petition for Review to the Court of Appeals docketed as CA G.R. SP No.
87463. The Court of Appeals rendered a decision dated 9 October 2007, the fallo of which reads:12

WHEREFORE, the DECISION DATED OCTOBER 6, 2004 is MODIFIED, ordering petitioner

LAND BANK OF THE PHILIPPINES to pay to the respondents just compensation (inclusive of interests
as of October 6, 2004) in the amount of P823,957.23, plus interest of 12% per annum on the
amount of P515,777.57, or P61,893.30 per annum, beginning October 7, 2004 until the just
compensation is fully paid in accordance with this decision.

In arriving at its computation, the Court of Appeals explained:

In computing the just compensation of the property, pursuant to Executive Order No. 228,
Sec. 2 thereof, the formula is

LV = AGP x 2.5 x GSP x A

(LV is Land Valuation; AGP is Average Gross Production; GSP is Government Support Price and A is
the Area of the Land)

WHERE: AGP = 99.36 cavans per hectare

GSP = Php 35.00 per cavan
A = 18.8704 hectares


Id. at 124.
Id. at 123.
Id. at 10-20.
LV = (99.36 x2.5 x 35.00) 18.8704
LV = 8,694 x 18.8704
LV = Php 164,059.26

With increment of 6% interest per annum compounded annually beginning October 21,
1972 until October 21, 1994 and immediately after said date with 12% interest per annum until the
value is fully paid in accordance with extant jurisprudence, computed as follows:

To be compounded annually at 6% per annum from October 21, 1972 up to October 24,
1994. The formula is

CA = P(1+R)n

(CA is Compounded Amount; P is Principal; R is Rate; and n is the number of years)

WHERE: P = Php 164,059.26

R = 6% per annum
N = 22 years


CA = 164,059.26 x (1+06) 22
CA = 164,059.26 x (1.06) 22
CA = 164,059.26 x 3.60353741
CA = Php 591,193.68

Plus simple interest of 12% per annum from October 22, 1994 up to October 21, 2003, the
formula of which is:

(I is the Interest; P is the Principal; R is the Rate and T is the time)

WHERE: P = Php591,193.68
R = 12% per annum
T = 9 years


I = 591,193.68 x 12 x 9
I = 70,943.24 x 9
I = Php638,489.18

(Plus interest of 12% per annum from October 22, 2003 up to October 6, 2004 or a period
of 350 days)


I = (591,193.68 x .12) x 350

I = 194.3605 x 350
I = Php68,027.77

Total Interest Php 706,516.95


Compounded Amount Php 591,193.68

Total Interest 706,516.95

TOTAL AMOUNT Php 1,297,710.63

The Court of Appeals pointed out that:

Pursuant to AO 13, considering that the landholding involved herein was tenanted prior to
October 21, 1972, the rate of 6% per annum is imposed, compounded annually from October 21,
1972 until October 21, 1994, the date of the effectivity of AO 13. Beyond October 21, 1994, only
the simple rate of 6% per annum interest is imposable until October 6, 2004 (the date of the
rendition of the decision of the RTC) on the total value (that is, P164,059.26 plus the compounded
increments up to October 21, 1994) but minus the lease rentals of P75,415.88. Only the simple rate
of 6% is applicable up to then because the obligation to pay was not founded on a written
agreement that stipulated a different rate of interest. From October 7, 2004 until the full payment,
the simple interest rate is raised to 12% per annum. The reason is that the amount thus determined
had by then acquired the character of a forbearance in money.13

LBP disagreed with the imposition of 12% interest and its liability to pay the costs of suit. It
filed a Motion for Reconsideration which was denied in the Court of Appeals Resolution dated 18
March 2008.

The Court of Appeals held:

We DENY the petitioners motion for partial reconsideration for the following reasons, to

1. Anent the first ground, the decision of October 9, 2007 has explained in detail why the
obligation of the petitioner should be charged 12% interest. Considering that the motion fails to

Id. at 56-57.
persuasively show that a modification of the decision thereon would be justified, we reject such
ground for lack of merit.

2. Regarding costs of suit, they are allowed to the prevailing party as a matter of course,
unless there be special reasons for the court to decree otherwise (Sec. 1, Rule 43, Rules of Court).
In appeals, the Court has the power to render judgment for costs as justice may require (Sec. 2,
Rule 142, Rules of Court).

In view of the foregoing, the award of costs to the respondents was warranted under the

Before this Court, LBP raises the same issues for resolution:

I. Is it valid or lawful to award 12% rate of interest per annum in favor of respondents
notwithstanding the 6% rate of interest per annum compounded annually prescribed under DAR
A.O. No. 13, series of 1994, DAR A.O. No. 02, series of 2004, and DAR A.O. No. 06, series of 2008,
xxx from November 1994 up to the time of actual payment?

II. Is it valid or lawful to adjudge petitioner LBP, which is performing a governmental

function, liable for costs of suit?15

At the outset, the Court notes that the parcels of land subject matter of this case were
acquired under Presidential Decree No. 27, but the complaint for just compensation was filed in
the RTC on 1 December 1994 after Republic Act No. 6657 already took into effect.16 Thus, our
pronouncement in LBP v. Soriano17 finds application. We quote:

Id. at 62.
Id. at 6.
Comprehensive Agrarian Reform Law (CARL), which took effect on 15 June 1988.
G.R. Nos. 180772 and 180776, 6 May 2010; see also Land Bank of the Philippines v. Gallego, Jr., G.R. No. 173226, 20 January
2009, 576 SCRA 680; Land Bank of the Philippines v. Heirs of Asuncion Aonuevo Vda. De Santos, G.R. No. 179862, 3 September
2009, 598 SCRA 115.
x x x [I]f just compensation is not settled prior to the passage of Republic Act No. 6657, it should
be computed in accordance with the said law, although the property was acquired under
Presidential Decree No. 27. The fixing of just compensation should therefore be based on the
parameters set out in Republic Act No. 6657, with Presidential Decree No. 27 and Executive Order
No. 228 having only suppletory effect.

In the instant case, while the subject lands were acquired under Presidential Decree No. 27,
the complaint for just compensation was only lodged before the court on 23 November 2000 or
long after the passage of Republic Act No. 6657 in 1998. Therefore, Section 17 of Republic Act No.
6657 should be the principal basis of the computation for just compensation. As a matter of fact,
the factors enumerated therein had already been translated into a basic formula by the DAR
pursuant to its rule-making power under Section 49 of Republic Act No. 6657. The formula outlines
in DAR Administrative Order No. 5, series of 1998 should be applied in computing just
compensation, thus:

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

In the case before Us, the just compensation was computed based on Executive Order No.
228, which computation the parties do not contest. Consequently, we reiterate our rule in LBP v.
Soriano that while we uphold the amount derived from the old formula, since the application of
the new formula is a matter of law and thus, should be made applicable, the parties are not
precluded from asking for any additional amount as may be warranted by the new formula.18

Land Bank of the Philippines v. Soriano, id.
That settled, we now proceed to resolve the issue of the propriety of the imposition of 12%
interest on just compensation awarded to the respondents. The Court of Appeals imposed
interest of 12% per annum on the amount of P515,777.57 beginning 7 October 2004, until full

We agree with the Court of Appeals.

In Republic v. Court of Appeals,19 we affirmed the award of 12% interest on just

compensation due to the landowner. The court decreed:

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, if 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
interest 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 interest 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.20

433 Phil. 106 (2002).
Id. at 122-123.
We similarly upheld Republics 12% per annum interest rate on the unpaid expropriation
compensation in the following cases: Reyes v. National Housing Authority,21 Land Bank of the
Philippines v. Wycoco,22 Republic v. Court of Appeals,23 Land Bank of the Philippines v. Imperial,24
Philippine Ports Authority v. Rosales-Bondoc,25 Nepomuceno v. City of Surigao,26 and Curata v.
Philippine Ports Authority.27

Conformably with the foregoing resolution, this Court rules that a 12% interest per annum
on just compensation, due to the respondents, from the finality of this decision until its
satisfaction, is proper.28

We now proceed to the issue of whether or not the Court of Appeals correctly adjudged
LBP liable to pay the cost of suit.

According to LBP, it performs a governmental function when it disburses the Agrarian

Reform Fund to satisfy awards of just compensation. Hence, it cannot be made to pay costs in
eminent domain proceedings.

LBP cites Sps. Badillo v. Hon. Tayag,29 to further bolster its claim that it is exempt from the
payment of costs of suit. The Court in that case made the following pronouncement:

443 Phil. 603 (2003).
464 Phil. 83 (2004).
494 Phil. 494 (2005).
G.R. No. 157753, 12 February 2007, 515 SCRA 449.
G.R. No. 173392, 24 August 2007, 531 SCRA 198.
G.R. No. 146091, 28 July 2008, 560 SCRA 41.
G.R. No. 154211-12, 22 June 2009, 590 SCRA 214.
National Housing Authority v. Heirs of Guivelondo, G.R. No. 166518, 16 June 2009, 589 SCRA 213, 222 citing Republic v.
Court of Appeals, supra note 19.
448 Phil. 606 (2003).
On the other hand, the NHA contends that it is exempt from paying all kinds of fees and
charges, because it performs governmental functions. It cites Public Estates Authority v. Yujuico,
which holds that the Public Estates Authority (PEA), a government-owned and controlled
corporation, is exempt from paying docket fees whenever it files a suit in relation to its
governmental functions.

We agree. People's Homesite and Housing Corporation v. Court of Industrial Relations

declares that the provision of mass housing is a governmental function:

Coming now to the case at bar, We note that since 1941 when the National Housing
Commission (predecessor of PHHC, which is now known as the National Housing Authority [NHA]
was created, the Philippine government has pursued a mass housing and resettlement program to
meet the needs of Filipinos for decent housing. The agency tasked with implementing such
governmental program was the PHHC.

These can be gleaned from the provisions of Commonwealth Act 648, the charter of said

We rule that the PHHC is a governmental institution performing governmental functions.

This is not the first time We are ruling on the proper characterization of housing as an
activity of the government. In the 1985 case of National Housing Corporation v. Juco and the NLRC
(No. L-64313, January 17, 1985, 134 SCRA 172), We ruled that housing is a governmental function.

While it has not always been easy to distinguish governmental from proprietary functions,
the Court's declaration in the Decision quoted above is not without basis. Indeed, the
characterization of governmental functions has veered away from the traditional constituent-
ministrant classification that has become unrealistic, if not obsolete. Justice Isagani A. Cruz avers:
"[I]t is now obligatory upon the State itself to promote social justice, to provide adequate social
services to promote a rising standard of living, to afford protection to labor to formulate and
implement urban and agrarian reform programs, and to adopt other measures intended to ensure
the dignity, welfare and security of its citizens.....These functions, while traditionally regarded as
merely ministrant and optional, have been made compulsory by the Constitution." 30

We agree with the LBP. The relevant provision of the Rules of Court states:

Id. at 617-618.
Rule 142

Section 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as a matter of course but the court shall have power,
for special reasons adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines
unless otherwise provided by law.

In Heirs of Vidad v. Land Bank of the Philippines,31this Court extensively discussed the role
of LBP in the implementation of the agrarian reform program.

LBP is an agency created primarily to provide financial support in all phases of agrarian
reform pursuant to Section 74 of Republic Act (RA) No. 3844 and Section 64 of RA No. 6657. It is
vested with the primary responsibility and authority in the valuation and compensation of
covered landholdings to carry out the full implementation of the Agrarian Reform Program. It
may agree with the DAR and the land owner as to the amount of just compensation to be paid to
the latter and may also disagree with them and bring the matter to court for judicial determination.


To the contrary, the Court had already recognized in Sharp International Marketing v. Court
of Appeals that the LBP plays a significant role under the CARL and in the implementation of the
CARP, thus:

As may be gleaned very clearly from EO 229, the LBP is an essential part of the government
sector with regard to the payment of compensation to the landowner. It is, after all, the
instrumentality that is charged with the disbursement of public funds for purposes of agrarian
reform. It is therefore part, an indispensable cog, in the governmental machinery that fixes and
determines the amount compensable to the landowner. Were LBP to be excluded from that
intricate, if not sensitive, function of establishing the compensable amount, there would be no
amount "to be established by the government" as required in Sec. 6, EO 229. This is precisely why

G.R. No. 166461, 30 April 2010.
the law requires the [Deed of Absolute Sale (DAS)], even if already approved and signed by the DAR
Secretary, to be transmitted still to the LBP for its review, evaluation and approval.

It needs no exceptional intelligence to understand the implications of this transmittal. It

simply means that if LBP agrees on the amount stated in the DAS, after its review and evaluation,
it becomes its duty to sign the deed. But not until then. For, it is only in that event that the amount
to be compensated shall have been "established" according to law. Inversely, if the LBP, after
review and evaluation, refuses to sign, it is because as a party to the contract it does not give its
consent thereto. This necessarily implies the exercise of judgment on the part of LBP, which is
not supposed to be a mere rubber stamp in the exercise. Obviously, were it not so, LBP could not
have been made a distinct member of [Presidential Agrarian Reform Council (PARC)], the super
body responsible for the successful implementation of the CARP. Neither would it have been given
the power to review and evaluate the DAS already signed by the DAR Secretary. If the function of
the LBP in this regard is merely to sign the DAS without the concomitant power of review and
evaluation, its duty to "review/evaluate" mandated in Adm. Order No. 5 would have been a mere
surplus age, meaningless, and a useless ceremony.


Even more explicit is R.A. 6657 with respect to the indispensable role of LBP in the
determination of the amount to be compensated to the landowner. Under Sec. 18 thereof, "the
LBP shall compensate the landowner in such amount as may be agreed upon by the landowner
and the DAR and LBP, in accordance with the criteria provided in Secs. 16 and 17, and other
pertinent provisions hereof, or as may be finally determined by the court, as the just compensation
for the land."


It must be observed that once an expropriation proceeding for the acquisition of private
agricultural lands is commenced by the DAR, the indispensable role of Land Bank begins.


It is evident from the afore-quoted jurisprudence that the role of LBP in the CARP is more
than just the ministerial duty of keeping and disbursing the Agrarian Reform Funds. As the Court
had previously declared, the LBP is primarily responsible for the valuation and determination of
compensation for all private lands. It has the discretion to approve or reject the land valuation and
just compensation for a private agricultural land placed under the CARP. In case the LBP disagrees
with the valuation of land and determination of just compensation by a party, the DAR, or even the
courts, the LBP not only has the right, but the duty, to challenge the same, by appeal to the Court
of Appeals or to this Court, if appropriate.32

It is clear from the above discussions that since LBP is performing a governmental function
in agrarian reform proceeding, it is exempt from the payment of costs of suit as provided under
Rule 142, Section 1 of the Rules of Court.

WHEREFORE, premises considered, the petition is GRANTED. The decision of the Court of
Appeals in CA G.R. SP No. 87463 dated 9 October 2007 is AFFIRMED with the MODIFICATION that
LBP is hereby held exempted from the payment of costs of suit. In all other respects, the Decision
of the Court of Appeals is AFFIRMED. No costs.



Associate Justice



Chief Justice


Associate Justice Associate Justice

Associate Justice


Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

Chief Justice