FIRST DIVISION

[G.R. No. 182431. November 17, 2010.]

LAND BANK OF THE PHILIPPINES, petitioner, vs. ESTHER

ANSON RIVERA, ANTONIO G. ANSON AND CESAR G. ANSON,
respondents.

DECISION

PEREZ, J : p

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 area 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
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 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. AICTcE

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 = Php35.00 per cavan
A = 18.8704 hectares
COMPUTATION:
LV = (99.36 x 2.5 x 35.00) 18.8704
LV = 8,694 x 18.8704
LV = Php164,059.26

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 — SAEHaC

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 CA = P(1+R)n

(CA is Compounded Amount; P is Principal; R is Rate; and n is the

number of years)

WHERE: P = Php164,059.26
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 = Php591,193.68

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)

I = (591,193.68 x .12) x
350
——————————
350
I = 194.3605 x 350
I = Php68,027.77
———————
Total Interest Php706,516.95
===========

RECAPITULATION:

Compounded Php591,193.68
Amount
Total Interest 706,516.95
—————————
TOTAL AMOUNT Php1,297,710.63
=============

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
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 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 petitioner's 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.SDHITE

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, ". . . 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:
. . . [I]f just compensation is not settled prior to the passage of
Republic Act No. 6657, it should be computed in accordance with the
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 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 cSCTID

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
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 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 Republic's 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:
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.ETHIDa

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.

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 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.cCAIDS

xxx xxx xxx

To the contrary, the Court had already recognized in Sharp
International Marketing v. Court of Appeals that the LBP plays a
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 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.
xxx xxx xxx

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."
xxx xxx xxx
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.
xxx xxx xxx
It is evident from the afore-quoted jurisprudence that the role of
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 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
CSIDTc

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.
Corona, C.J., Velasco, Jr., Leonardo-de Castro and Peralta, * JJ., concur.

Footnotes
*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.
1.Penned by Associate Justice Lucas P. Bersamin (now a member of this Court),
with Associate Justices Portia Aliño Hormachuelos and Estela M. Perlas-
Bernabe, concurring. Rollo, pp. 50-62.
2.Id. at 82-83.

3.Id. at 7.
4.Memorandum of the Petitioner.
5.Rollo, p. 139.
6.Id. at 146.

7.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."
8.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.

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 9.Id. at 122.
10.Id. at 124.
11.Id. at 123.
12.Id. at 10-20.

13.Id. at 56-57.
14.Id. at 62.
15.Id. at 6.
16.Comprehensive Agrarian Reform Law (CARL), which took effect on 15 June
1988.
17.G.R. Nos. 180772 and 180776, 6 May 2010; s e e 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 Añonuevo Vda. De Santos,
G.R. No. 179862, 3 September 2009, 598 SCRA 115.

18.Land Bank of the Philippines v. Soriano, id.

19.433 Phil. 106 (2002).
20.Id. at 122-123.
21.443 Phil. 603 (2003).
22.464 Phil. 83 (2004).

23.494 Phil. 494 (2005).

24.G.R. No. 157753, 12 February 2007, 515 SCRA 449.
25.G.R. No. 173392, 24 August 2007, 531 SCRA 198.
26.G.R. No. 146091, 28 July 2008, 560 SCRA 41.

27.G.R. Nos. 154211-12, 22 June 2009, 590 SCRA 214.

28.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.

29.448 Phil. 606 (2003).

30.Id. at 617-618.
31.G.R. No. 166461, 30 April 2010.
32.Id.

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