Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170245 July 1, 2013
THE HEIRS OF SPOUSES DOMINGO TRIA AND CONSORCIA CAMANO TRIA, PETITIONERS,
vs.
LAND BANK OF THE PHILIPPINES AND DEPARTMENT OF AGRARIAN REFORM, RESPONDENTS.
SEPARATE OPINION
LEONEN, J.:
I maintain my position that the value for purposes of just compensation should be the fair market value at the time of the taking but the amount to be paid must be the present value of the amount that should have been paid. The amount to be paid must therefore take into consideration inflation, among other pertinent factors. This is what is meant by the various cases cited in the ponencia that the amount to be given is the value of the property "at the time the payment is made."1
The concept of just compensation in agrarian reform is the same as just compensation in all types of taking.2 The landowner should be paid the present value of the fair market value of the land at the time of the actual taking of the property.3 Just compensation is computed at the time of the taking because it replaces the value of the rights to property removed from the owner.
The fair market value of the property is the outcome of market perceptions. Such taking will also have an effect on the fair market value of adjoining properties. At that instance, the taking on the part of the government may have already caused other properties that are located near the property to depreciate in value. Hence, the value of the property itself naturally decreases after the property has been definitively taken by government.4 To index the just compensation to be paid to the owner on the fair market value of the property at the time of the payment will be to needlessly penalize the owner. This is not what our Constitution mandated in Article III, Section 9.
I am also of the view that the Constitution provides that the determination of just compensation, particularly the determination of fair market value, is an inherent judicial function.5 That discretion cannot be curtailed by legislation. Hence, the formulas contained in various agrarian reform laws should be merely recommendatory to the trial court determining just compensation.6 Each case must be approached by the trial judge with sensitivity to the specific local market in which it is found and in accordance with the general guidance given by our jurisprudence.7 This valuation of the fair market value must be done on a case-to-case basis. The totality of the circumstances must be fully appreciated in determining the value of the property. This is in the interest of making certain that the landowners are ensured of their rights under the Constitution.
With that, I am of the opinion that there is a need to provide a method of determination of just compensation. This is particularly true for the Special Administrative Court (SAC) in agrarian reform, which is explicitly mandated in Republic Act No. 6657, as amended by Republic Act No. 9700. This definitive method of determination will ensure that courts will have a proper jurisprudential guideline that is provided by the judiciary itself, and not one imposed by the legislative or the executive branches of government.
I propose that when the courts undertake the determination of just compensation in eminent domain cases, this determination should undergo two different stages. This applies when a significant amount of time has lapsed between the time of taking and the time of payment.
The first stage requires ascertaining the fair market value of the subject property, as earlier mentioned. This requires determining the value of the property at the time of the taking. Among other factors, this includes the due consideration of the applicability of formulas found in the law and administrative guidelines, tax declarations and the like. In agrarian reform cases, such as the present case before this Court, I propose that the provisions on social justice in the 1987 Constitution8 on agrarian reform should serve as definitive qualitative standards to ascertain the determination of the fair market value which should be paid to the landowner.
The second stage of determining just compensation is finding the present value of the fair market value at the time of the taking. When the law said payment should be based on "fair market value at the time of taking." ideally, the property owner should also be paid at the time of taking. This would give true meaning to the Constitutional phrase of "just compensation." It is only just that at the instance the owner is deprived of the property, government compensates the owner.
We have to face the reality that expropriation proceedings, as in this case, take a significant amount of time. An appreciable gap of time has lapsed between the actual taking and the final award of just compensation granted by the court. This period of time can take years in certain cases. This results in the deprivation of beneficial use on the part of the landowner of the land or the proceeds from the payment of its fair market value.
To augment this situation, courts have to take into consideration the interest income the owner could have earned if he had received the money when the property was taken. In economics, this is referred to as the future9 or present value.10
Another way of looking at the concept of present value in the context of expropriation is to pretend that the parties in the case have extraordinary foresight. In such a hypothetical situation, the parties already know the fair market value even before the expropriation proceedings have been terminated. With that amount in mind, government could already pay the property owner at the time of taking and in turn, the property owner could deposit the payment in a bank. By the time expropriation proceedings have ceased, the property owner could already withdraw this amount of money. By then, he would have withdrawn the principal (fair market value of the property at the time of taking) and the interest it has accumulated over time.1âwphi1
When the courts undertake their duty of determining just compensation, they must aim for compensation that is truly just, taking into consideration all relevant factors, such as the appreciation or depreciation of currency. Economists have devised a simple way to compute for the value of money in consideration of future interest earnings.
For purposes of our understanding and application, consider property owner AA, who owns a piece of land. The government took his property at Year 0. Let us assume that his property had a fair market value of ₱100 at the time of taking. In our ideal situation, the government should have paid him ₱100 at Year 0. By then, AA could have put the money in the bank so it could earn interest. Let us peg the interest rate at 5% per annum (or in decimal form, 0.05).11
If the expropriation proceedings took just one year (again, another ideal situation), AA could only be paid after that year. The value of the ₱100 has appreciated already. We have to take into consideration the fact that in Year 1, AA could have earned an additional ₱5 in interest if he had been paid in Year 0.
In order to compute the present value of ₱100, we have to consider this formula:
Present Value in Year 1 = Value at the time of Taking + (Interest Earned of the Value at the Time of Taking)
In formula12 terms it will look like this:
PV1 = V + (V*r)
PV1 = V*(1+r)
PV1 = present value in Year 1
V = value at the time of taking
r = interest rate
So in the event that AA gets paid in Year 1, then:
PV1 = V * (1+r)
PV1 = ₱100 (1 + 0.05)
PV1 = ₱105
So if AA were to be paid in Year 1 instead of in Year 0, it is only just that he be paid ₱105 to take into account the interest earnings he has foregone due to the expropriation proceedings. If he were to be paid in Year 2, we should take into consideration not only the interest earned of the principal, but the fact that the interest earned in Year 1 will also be subject to interest earnings in Year 2. This concept is referred to as compounding interest rates. So our formula becomes:
Present Value in Year 2 = [Present Value in Year 1] + [Interest Earned of Present Value in Year 1]
Recall that in formula terms, Present Value in Year 1 was expressed as:
PV1 = [V*(1+r)]
Hence, in Year 2, the formula will be:
PV2 = PV1*(1+r) or
PV2 = [V*(1+r)]*(1+r)
Seeing that the term (1+r) is repeated, it can be further simplified as:
PV2 = V*(1+r)2
PV2 = ₱100 *(1+0.05)2
PV2 = ₱100 *1.1025
PV2 = ₱110.25
This is the same as if we multiply the present value in Year 1 of ₱105 by 1.05 (our multiplier with the interest rate).
If proceedings go on until Year 3, then the formula would be:
PV3 = PV2*(1+r)
PV3 = {[V*(1+r)]*(1+r)}*(1+r)
Again, (1+r) is repeated three times, the same number as the number of years, hence, simplifying the formula would yield:
PV3 = V*(1+r)3
Due to compounding interest, the formula for present value at any given year becomes:
PVt = V *(1+r)t
PV stands for the present value of the property. In order to calculate the present value of the property, the corresponding formula is used: V stands for value of the property at the time of the taking, taking in all the considerations that the court may use in order to arrive at the fair market value in accordance with law.
This is multiplied to (1 + r) where r equals the implied rate of return (average year to year interest rate) and raised to the exponent t. The exponent t refers to the time period or the number of years for which the value of the money would have changed.
So if AA were to be paid ten years from the time of taking, the present value of the amount he should have been paid at the time of taking would be:
PVt = V *(1+r)t
PV10 = ₱100 *(1+0.05)10
PV10 = ₱100 *(1.63)
PV10 = ₱163
This proposal is admittedly unfamiliar to most of the members of the bench and bar. But the Court has undertaken similar endeavors in the past, such as the calculation of loss of earning capacity for purposes of computing actual damages. The usage of the concept of present value, and the proposed formula, incorporates the discipline of economics into the judicial determination of the SAC. This will not only simplify the judicial determination, but also ensure that the landowner is compensated justly after the fair market value of the property has been determined, no matter how long the expropriation proceedings take in court.
Valuation is an inexact science; each property subject to the court’s determination of just compensation is subject to varying circumstances, and what is present for one property may not be present for another. That said, this new proposed method will allow the courts to exercise a judicial standard that the courts, particularly the SAC can utilize to arrive at a truly fair amount of just compensation.
I vote therefore to remand the case back to the Regional Trial Court for promulgation of the partial judgment and for the Court, to determine the full amount of just compensation in accordance with this opinion.
Footnotes
1 See Ponencia, 5-8, citing among others, Gabatin v. Land Bank of the Philippines, 486 Phil 366 (2004).
2 Apo Fruits v Land Bank, G.R. No. 164195, April 5, 2011, 647 SCRA 207.
3 National Power Corporation v. Sps. Florimon V. Ileto et al, G.R. No. 169957 and Danilo Brillo, et al vs. National Power Corporation, G.R. No. 171588, July 11, 2012.
4 See Republic v. Vda de Castellvi, G.R. No. L-20620, August 15, 1974, 58 SCRA 336, defining taking as "(1) entry by the expropriator into a private property, (2) entrance into private property must be more than a momentary period, (3) such entry must be under warrant or color of legal authority, (4) the property must be devoted to a public use or otherwise informally appropriated or injuriously affected, and (5) the utilization of the property for public use must be in such a way as to oust the owner and deprive him of all beneficial enjoyment of the property."
5 Export Processing Zone Authority v. Dulay, No. L-59603, April 29, 1987, 149 SCRA 305.
6 Land Bank of the Philippines v. Pacita Agricultural Multi-Purpose Cooperative, Inc., G.R. No. 177607, January 19, 2009, 576 SCRA 291; Meneses v. Secretary of Agrarian Reform, 535 Phil. 819 (2006); Lubrica v. Land Bank, 537 Phil. 571 (2006); Land Bank of the Philippines v. Heirs of Maximo Puyat and Gloria Puyat, G.R. No. 175055, June 27, 2012; Land Bank of the Philippines v. Natividad, 497 Phil. 738 (2005); Land Bank of the Philippines v. Dumlao, G.R. No. 167809, November 27, 2008, 572 SCRA 108.
7 See for instance Spouses Curata et al v. Philippine Ports Authority, G.R. No. 154211-12, June 22, 2009, 590 SCRA 214.
8 CONSTITUTION, Art.XIII, Sec. 4. - The State shall, by law, undertake an agrarian reform program founded on the right of farmers and regular farmworkers who are landless, to own directly or collectively the lands they till or, in the case of other farmworkers, to receive a just share of the fruits thereof. To this end, the State shall encourage and undertake the just distribution of all agricultural lands, subject to such priorities and reasonable retention limits as the Congress may prescribe, taking into account ecological, developmental, or equity considerations, and subject to the payment of just compensation. In determining retention limits, the State shall respect the right of small landowners. The State shall further provide incentives for voluntary land-sharing.
CONSTITUTION, Art. XIII, Sec. 5. - The State shall recognize the right of farmers, farmworkers, and landowners, as well as cooperatives, and other independent farmers' organizations to participate in the planning, organization, and management of the program, and shall provide support to agriculture through appropriate technology and research, and adequate financial, production, marketing, and other support services.
CONSTITUTION, Art. XIII, Sec. 6. - The State shall apply the principles of agrarian reform or stewardship, whenever applicable in accordance with law, in the disposition or utilization of other natural resources, including lands of the public domain under lease or concession suitable to agriculture, subject to prior rights, homestead rights of small settlers, and the rights of indigenous communities to their ancestral lands. The State may resettle landless farmers and farmworkers in its own agricultural estates which shall be distributed to them in the manner provided by law.
CONSTITUTION, Art. XIII, Sec. 7. - The State shall protect the rights of subsistence fishermen, especially of local communities, to the preferential use of the communal marine and fishing resources, both inland and offshore. It shall provide support to such fishermen through appropriate technology and research, adequate financial, production, and marketing assistance, and other services. The State shall also protect, develop, and conserve such resources. The protection shall extend to offshore fishing grounds of subsistence fishermen against foreign intrusion. Fishworkers shall receive a just share from their labor in the utilization of marine and fishing resources.
CONSTITUTION, Art. XIII, Sec. 8. -The State shall provide incentives to landowners to invest the proceeds of the agrarian reform program to promote industrialization, employment creation, and privatization of public sector enterprises. Financial instruments used as payment for their lands shall be honored as equity in enterprises of their choice.
9 "Future value is the amount of money in the future that an amount of money today will yield given prevailing interest rates." N. Gregory Mankiw, Essentials of Economics 414 (2007 edition).
10 Present value (of an asset) is defined as "the value for an asset that yields a stream of income over time." Paul A. Samuelson and William D. Nordhaus, Economics 748 (Eighteenth Edition).
11 Interest rates are dependent on risk, inflation and tax treatment. See Paul A. Samuelson and William D. Nordhaus, Economics 269 (Eighteenth Edition). Actual interest rate to be applied should be computed reasonably according to historical epochs in our political economy. For example, during the war, we have experienced extraordinary inflation. This extraordinary inflation influences adversely interest rates of financial investments. The period of martial law is another example of a historical epoch that influences interest rates.
12 N. Gregory Mankiw, Essentials of Economics 414-415 (2007 edition).
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