FIRST DIVISION

LAND BANK OF THE PHILIPPINES, G.R. No. 182431

Petitioner,
Present:

CORONA, C. J.,
Chairperson,
- versus - VELASCO, JR.,
LEONARDO-DE CASTRO,
PERALTA,* and
PEREZ, JJ.

ESTHER ANSON RIVERA,

ANTONIO G. ANSON AND CESAR G. Promulgated:
ANSON,
Respondents. November 17, 2010
x--------------------------------------------------
x

DECISION

PEREZ, J.:

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 Decision[1] 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
Resolution[2] 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 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. 27[7] were governed and valued in
accordance with the provisions of Executive Order No. 228[8] 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]
 LBP filed a Motion for Reconsideration[10] 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

COMPUTATION:

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

COMPUTATION:

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=PxRxT

(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

COMPUTATION:

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)

COMPUTATION:

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

350
I = 194.3605 x 350
I = Php68,027.77

Total Interest Php 706,516.95

RECAPITULATION:
 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 wit:

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 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 circumstances.[14]

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. Soriano[17] finds application. We quote:

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]

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
payment.

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]

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.
[22] [23]
Wycoco, Republic v. Court of Appeals, Land Bank of the Philippines
v. Imperial,[24] Philippine Ports Authority v.
[25] [26]
Rosales-Bondoc, Nepomuceno v. City of Surigao, 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:
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 agency.

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:

Rule 142
Costs

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,[31]this 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.

xxxx

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 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.

xxxx

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."

xxxx

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.

xxxx

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.
 SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice TERESITA J. LEONARDO-DE CASTRO
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

CERTIFICATION
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.

RENATO C. CORONA
Chief Justice