REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS (DPWH), PETITIONER, V. LEONOR MACABAGDAL, REPRESENTED BY EULOGIA MACABAGDAL PASCUAL (FORM…

Republic versus Macabagdal

The Case

This is an expropriation case in which the Republic of the Philippines, acting through the Department of Public Works and Highways, took a two hundred square meter lot in Barangay Ugong, Valenzuela City for the C-5 Northern Link Road Project, also known as the North Luzon Expressway Segment 8.1. The landowner, Leonor Macabagdal, did not oppose the taking; what she contested was how much she should be paid, and at what interest. The case matters because it settles a question examiners love: when the government delays payment of just compensation, what legal interest runs on the unpaid balance, and from what date does it begin to run? The Supreme Court answers with a split rate — twelve percent per annum until the thirtieth of June 2013, and six percent per annum thereafter — reckoned not from the filing of the complaint but from the date of taking, which is the date the writ of possession issued.

Procedural History

The Republic filed a complaint for expropriation before the Regional Trial Court of Valenzuela City, Branch 172, against an unknown owner. A writ of possession issued, a provisional deposit was made, and Leonor Macabagdal was later substituted as party-defendant. The trial court appointed a board of commissioners, which recommended nine thousand pesos per square meter as just compensation. The trial court adopted the recommendation, fixed just compensation at nine thousand pesos per square meter, ordered the Republic to pay that amount less the provisional deposit, and imposed legal interest at twelve percent per annum on the unpaid balance from the time of taking until full payment.

The Republic appealed to the Court of Appeals, questioning both the amount of just compensation and the twelve percent rate, arguing that six percent per annum should apply under the Bangko Sentral ng Pilipinas Monetary Board Circular Number 799, Series of 2013. The Court of Appeals affirmed the trial court in full, holding that the commissioners observed the parameters of Section 5 of Republic Act Number 8974 and that the trial court's findings were supported by the evidence. The Republic then came to the Supreme Court by petition for review on certiorari, claiming that the Court of Appeals never squarely ruled on the interest rate issue.

Facts

On the twenty-third of January 2008, the Republic, through the Department of Public Works and Highways, filed a complaint for expropriation over a two hundred square meter lot in Barangay Ugong, Valenzuela City, for the construction of the C-5 Northern Link Road Project. On the fifth of May 2008, the trial court granted the Republic a writ of possession over the lot and required a provisional deposit of five hundred fifty thousand pesos, representing the zonal value at two thousand seven hundred fifty pesos per square meter.

On the twenty-eighth of August 2012, Leonor Macabagdal, represented by Eulogia Macabagdal Pascual, was substituted as party-defendant after showing that the lot was registered in her name. She did not oppose the expropriation and received the provisional deposit. The trial court then appointed a board of commissioners to determine just compensation.

On the twenty-third of May 2014, the commissioners submitted their report recommending nine thousand pesos per square meter as the fair market value, considering the lot's location, neighborhood, land classification, utilities, amenities, physical characteristics, occupancy and usage, highest and best usage, current market offerings, and prior expropriation decisions involving similarly situated properties in the same barangay. The trial court adopted the recommendation and imposed twelve percent interest on the unpaid balance from the time of taking.

Issues

• Whether or not the Court of Appeals committed reversible error in affirming the imposition of legal interest at twelve percent per annum on the unpaid balance of just compensation, computed from the time of taking until full payment.
• Whether or not the legal interest rate should be reduced to six percent per annum beginning the first of July 2013 under the Bangko Sentral ng Pilipinas Monetary Board Circular Number 799, Series of 2013.
• Whether or not legal interest should run from the filing of the complaint rather than from the date of the writ of possession.

Applicable Provisions

Section 5 of Republic Act Number 8974, which the Court of Appeals invoked in affirming the commissioners' valuation, provides:

Section 5. Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale. — In order to facilitate the determination of just compensation, the court may consider, among other factors, the following: (a) The classification and use for which the property is suited; (b) The developmental costs for improving the land; (c) The value declared by the owners; (d) The current selling price of similar lands in the vicinity; (e) The reasonable disturbance compensation for the removal and/or demolition of certain improvements on the land and for the value of improvements thereon; (f) The size, shape and location, and other physical features of the land to be expropriated; (g) The tax declaration of real property at the time of the taking; and (h) The current market value of the land at the time of the taking.

This provision supplies the factors the commissioners used to arrive at nine thousand pesos per square meter, and it anchors the Court of Appeals' holding that the valuation was reasonable.

The rate of legal interest is governed by the Bangko Sentral ng Pilipinas Monetary Board Circular Number 799, Series of 2013, entitled "Rate of interest in the absence of stipulation," effective the first of July 2013, which provides:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

This circular is the basis for reducing the interest rate from twelve percent to six percent per annum beginning the first of July 2013, since the delay in paying just compensation amounts to a forbearance of money.

Ruling

On the first issue, the Court held that the petition is partly meritorious. The purpose of just compensation is not to reward the owner but to compensate her for her loss, measured by the market value at the time of taking. The owner's loss includes not only the property but its income-generating potential, so full compensation must be paid immediately. Where only a provisional deposit was paid, an unpaid balance remains, and interest is due on that balance. The Court characterized the delay in payment of just compensation as an effective forbearance of money, entitling the landowner to interest on the difference between the final amount adjudged and the initial payment made.

On the second issue, the Court agreed with the Republic that the twelve percent rate applies only until the thirtieth of June 2013, and that beginning the first of July 2013 the rate is six percent per annum under the circular. The Court noted that prevailing jurisprudence has upheld the applicability of the circular to forbearances of money in expropriation cases, and that the cases cited by the landowner were decided before the circular took effect.

On the third issue, the Court clarified that legal interest runs not from the filing of the complaint but from the date of the writ of possession, because it is from that date that the deprivation of property can be established. The Court therefore corrected the award: twelve percent per annum from the taking on the fifth of May 2008 until the thirtieth of June 2013, and six percent per annum from the first of July 2013 until full payment.

Doctrine

Just compensation is measured by the market value of the property at the time of taking, and it must be paid in full and immediately. When the government pays only a provisional deposit and delays the balance, that delay is an effective forbearance of money, and the landowner is entitled to legal interest on the unpaid balance. The applicable rate is twelve percent per annum until the thirtieth of June 2013, and six percent per annum thereafter, pursuant to the Bangko Sentral ng Pilipinas Monetary Board Circular Number 799, Series of 2013. Legal interest accrues from the date of taking, which is the date the writ of possession issues, not from the filing of the complaint, because it is from that date that the deprivation of property is established.

Disposition

The petition was partly granted; the Court of Appeals decision was affirmed with modification, imposing twelve percent interest per annum on the unpaid balance from the fifth of May 2008 to the thirtieth of June 2013, and six percent per annum thereafter until full payment, with the rest of the decision standing.

Remember This

Memorize the split rate and the reckoning date: twelve percent per annum until the thirtieth of June 2013, six percent per annum thereafter, running from the writ of possession, not from the complaint. Examiners use this case to test whether you know that the circular applies to expropriation as a forbearance of money and that interest begins at the taking.