REPUBLIC OF THE PHILIPPINES (MINISTRY OF EDUCATION AND CULTURE), PETITIONER, VS. INTERMEDIATE APPELLATE COURT AND AMEREX ELECTRONICS, PHILS. CORPORATION, RESPONDENTS.

The government, in the exercise of its power of eminent domain, expropriated property owned by Amerex
Electronics, Phils. Corporation.  The amount of just compensation for such
property is now the subject of this petition for review on certiorari.

The property involved consists of four (4) parcels of land with a total area of 9,650
square meters located at No. 2090 Dr. Manuel L. Carreon
Street, Manila, a short walking
distance from Herran
(now Pedro Gil) Street.  Its previous
owner, Avegon, Inc.,
offered it for sale to the City School Board of Manila on July 21, 1973 at P2,300,000.  The school board was willing to buy at P1,800,000 but the then Mayor of Manila intervened and volunteered to
negotiate with Avegon. Inc. for a better price.

Inasmuch as the alleged negotiation did not materialize, on June 3, 1974, Avegon,
Inc. sold the property and its improvements to Amerex
Electronics, Phils. Corporation (Amerex
for brevity) for P1,800,000.  Thereafter, Transfer Certificates of Title
Nos. 115571, 115572, 115573 and 115574 were issued in favor of Amerex.

On August 29, 1975, the Solicitor General filed for the
Department of Education and Culture (DEC) a complaint against Amerex for the expropriation of said property before the
Court of First Instance of Manila (Civil Case No. 99190).  The complaint stated that the property was
needed by the government as a permanent site for the Manuel de la Fuente High School (later renamed Don Mariano Marcos
Memorial High School); that the fair market
value of the property had been declared by Amerex as
P2,435,000, and that the assessor had determined its
market value as P2,432,042 and assessed it for taxation purposes in the amount of P1,303,470.^[1]

In a motion praying that the plaintiff be authorized to take
immediate possession of the property, the then Acting Solicitor General Hugo E.
Gutierrez, Jr., invoking Presidential Decree No. 42, informed the court that
said assessed value of the property for
taxation purposes had been deposited with the Philippine National Bank (PNB) in
Escolta, Manila on September 30, 1975.

Consequently, on October 9, 1975, the court issued an order directing the sheriff to place the plaintiff
in possession of the property.  The
plaintiff took actual possession thereof on October 13, 1975.

Amerex filed a motion to dismiss the
complaint stating that while it was not contesting the merits of the complaint,
the same failed to categorically state the amount of just compensation for the
property.  It therefore prayed that in
consonance with P.D. No. 794, the just compensation be fixed at P2,432,042, the market value of the property determined by the
assessor which was lower than Amerex’s own
declaration.

The motion to dismiss was opposed
by the plaintiff reasoning that while indeed the market value as determined by
the assessor was lower than that declared by Amerex, the plaintiff intended to present evidence of a much lower market value.

Alleging that its motion to dismiss merely sought a clarification on the just
compensation for the property, Amerex filed a motion
to withdraw the plaintiff’s deposit of P1,303,470 with the PNB without prejudice to its entitlement to the amount of
P1,128,572, the balance of the just compensation of P2,432,042 insisted
upon.  The plaintiff interposed no
objection to the motion provided that an order of condemnation be issued by the court and that the plaintiff be
allowed to present its evidence on the matter of just compensation.

On December 3, 1975, the lower court issued an order vesting the plaintiff
with the lawful right to take the property upon payment of just compensation as provided by law.  On December 19, 1975, after the parties had submitted the names of their respective recommendees to the appraisal committee, the lower court appointed Atty. Narciso Pena, Aurelio V. Aquino
and Atty. Higinio Sunico as
commissioners.

Thereafter, the lower court ordered Amerex
to submit an audited financial statement on the acquisition cost of the
property including expenses for its improvement.  Amerex was also
allowed by the court, after it had filed a second motion therefor,
to withdraw the P1,303,470 deposit with the PNB.

On March 12, 1976, the plaintiff filed a motion for leave of
court to amend its complaint stating that after it had filed the same, P.D. No.
464^[2]
was amended by P.D. No. 794; that Section 92 of said Code, as amended, provided
that when private property is acquired
for public use, its just compensation “shall not exceed the market value
declared by the owner or administrator or anyone having legal interest in the
property, or such market value as determined by the assessor, whichever is
lower”; and that the amended complaint would state that the fair market
value of the property could not be in excess of P1,800,000, the amount for
which defendant’s
predecessor-in-interest had offered to sell said properties to the Division
of Public Schools of Manila and
which amount was also the purchase price paid by Amerex
to Avegon, Inc. 
In due course, plaintiff filed an amended complaint.

Amerex, however, opposed the motion for
leave to amend the complaint contending that the plaintiff was insisting
on a valuation given by neither the owner nor the assessor as mandated by P.D.
No. 794 but by another person in August 1973 when the peso value was much
higher.

The lower court denied the motion to
amend the complaint; but after the plaintiff had filed a motion for
reconsideration, the lower court
admitted the amended complaint on April 27, 1976.  In the meantime, Amerex
submitted to the court “audited financial statements” consisting of
an account stating that the cost of its land and buildings was P2,107,479.48, and another account stating that it incurred
total expenses of P150,539 for their maintenance.^[3] These statements yielded the amount of P2,258,018.48 as the total value of the property.

The commissioners conducted an ocular inspection and hearing on
the value of the property.  On October
18, 1976, the plaintiff filed a motion seeking the disqualification of Engineer
Aurelio B. Aquino as commissioner on the ground that he could
not be expected to be unbiased inasmuch as in the three appraisal reports
submitted by Amerex, Aquino
had indicated as fair market value of the property amounts much more than the plaintiff’s fair market
value determination of P1,800,000.  Said
appraisal reports were made by Ampil Realty and
Appraisal Co., Inc. with Aquino signing thereon as
real estate appraiser.  One report, dated
February 15, 1974 and submitted to Commonwealth Insurance Company indicated P2,100,000 as the fair
market value of the property.^[4] Two other reports were made at the behest of
Amerex with one, dated November 15, 1974, fixing
the fair market value at P2,300,00^[5] and the other, dated June 5,
1975, with P2,400,000 as the fair market value.^[6]

Amerex opposed the motion to disqualify
Aquino as commissioner, and the court, in its order of November 5,
1976, denied it.  Hence, on January 24, 1977, the commissioners
submitted their appraisal report finding that the fair market value of the
property was P2,763,400.  The commissioners, however, added:

“Under the provision of Presidential Decree No. 464, as
amended by Presidential Decree No. 794, above-quoted, we could have safely
adopted the valuation of the City Assessor in the sum of P2,432,042.00, this being
lower than that declared by the owner in the sum of P2,435,000.00, although by
actual appraisal of the undersigned Commissioners the property could command a
fair market value of P2,763,400.00 as of the date of our ocular inspection.

“Considering, however, that according to the audited statement
submitted by defendant, the
acquisition costs and other legal expenses incurred on the subject property by
AMEREX, the grand total of P2,258,018.57, are (sic) lower than the findings of
the undersigned Commissioners, the explanation being the fact that the price of
the sale was a real bargain possibly due to dire necessities of the seller
AVEGON, it is respectfully submitted that the said sum of P2,258,018.57 be
adopted for purposes of determining just compensation payable to defendant
AMEREX, which sum does not exceed, but is even lower than, the fair market
value as determined by the City Assessor and as declared by said
defendant.”^[7]

Both parties objected to the report of the commissioners.  The plaintiff contended that the
commissioners’ conclusion that the fair market value of the property was P2,763,400 was unsupported by evidence and that their
recommended just compensation of P2,258,018.57 was excessive.  It reiterated its stand that the just compensation should only be P1,800,000 it being the price had the sale between the city
school board and Avegon, Inc. materialized and also
the actual price of the sale between Avegon, Inc. and
Amerex.  On the
other hand, Amerex averred that the recommended just
compensation was unjustified in view
of the commissioners’ finding
that the fair market value of the property was P2,763,400.

On March 15, 1977, the lower court^[8]
rendered a decision based on the
following findings:

“The court believes that the findings of the commissioners are
supported by the evidence adduced during the hearings and that their
recommendation is reasonable.  The
property was originally owned by Avegon, Inc. and was
assessed at P1,079,370.00 by the City of Manila for the year 1974 (Exh. A-4) Avegon, Inc. offered to sell it to the City School Board on
July 21, 1973 at P2,300,000.00 but it accepted the
counter-offer of P1,800,000.  The
negotiations, however, fell through
when the city failed to act (Exhs. C,
C-1, C-2, C-3 and C-4).  The property
was appraised on February 15, 1974 at P2,100,000.00 at the instance of Commonwealth Insurance
Company, an affiliate of Warner, Barnes & Co., Inc. (Exh.
G).  The
defendant company introduced improvements on the property in the middle part of 1974 worth P260,690.50 (Exhs. 4, 4-A to 4-J; 11, 13, 14 to 19).  After the renovation, the property was again
appraised at the instance of the defendant at P2,300,000.00
on November 15, 1974 (Exh. 2).  Due to the world-wide recession, there
followed a slump in the demand for electronic products.  On June 4, 1975, the Traders Commodities
Corporation offered to buy the property at P2,750,000.00
with a deposit of P50,000.00 as earnest money. 
The offer was formally made by the law firm Salonga,
Ordonez, Yap, Africano and Associates (Exh. 6).  The offer
was accepted on June 9, 1975 (Exhs. 7 and 8).  The sale
was not consummated, however, when the government notified the defendant in
conference held in Malacanang on June 15, 1975 that
it wanted to buy the property for the use of the Manuel de la Fuente High School (Exh. 9).  Because of the failure of the parties to
agree on the price and other conditions of the purchase, the government filed
this action on August 2, 1975.

“It is apparent that the commissioners were influenced by the
fact that the city assessors fixed the market
value of the property at P2,432,042.00 for the year
1975 pursuant to Presidential Decree No. 464 and that there was a perfected
contract to buy it at P2,750,000.00.  No
evidence was presented nor even an allegation made, to
show that the government valuation is fraudulent or erroneous.  It must
therefore be regular (Rule 131, sec. m); and in view of the reliance of the Presidential
Decree upon it as a standard to
be followed by the courts in arriving at the just compensation of the property
when it is acquired by the government, it has great evidentiary weight.  The offer to buy at P2,750,000.00
was made by one of the most reputable law-firms in the country.  It is not likely that it would have lent
itself to any fraudulent device or scheme to
inflate the value of the property. 
Commissioner Pena is a renowned authority on land registration, and has
been a realtor for many years.  Atty. Higinio Sunico is the chief of
the Land Management Division, Bureau of Lands, who was recommended by the
plaintiff.  Both are well-known for their
probity.  Although it appears that Mr. Aquino, the commissioner recommended by the
defendant, had occasion in the past to participate in transactions involving
the same property, the court believes that the concurrence of the other
commissioners is a safe guaranty
of the correctness of their appraisal and recommendation.”

Accordingly, the dispositive portion of
the decision reads as follows:

“WHEREFORE, judgment is hereby rendered fixing the amount of
P2,258,018.57 as just
compensation for the property of the defendant and declaring the plaintiff
entitled to possess and appropriate it to the public use alleged in the
complaint and to retain it upon payment of the said amount, after deducting the
amount of P1,303,470.00, with legal interest from October 13, 1975 when the
plaintiff was placed in possession of the real property, and upon payment to
each of the commissioners of the
sum of P35.00 for their attendance during the hearings held on January 23,
February 16, May 11, July 23, September 17, October 12 and December 10, 1976,
plus P500.00 each for the preparation of
the report, and the costs.”

The plaintiff elevated the case to the then Intermediate
Appellate Court (IAC) for review.  On
October 29, 1984, it affirmed the appealed decision with the modification that
the plaintiff Republic of the Philippines be exempted from the payment of the
commissioners’ fees, the P500.00 granted each of them
for the preparation of the report and the costs.

Its motion for the reconsideration of said decision having been
denied, petitioner filed the instant petition submitting the following issues
for resolution:

“1.     Whether
or not respondent Court erred in not disqualifying Commissioner Aurelio B. Aquino
from membership in the Committee of Appraisal.

2.       Whether or not
respondent Court erred in not totally disregarding the ‘audited statement by
the defendant’, which is hearsay in nature and was not
formally offered in evidence.

3.       Whether or not
respondent Court erred in totally disregarding petitioner’s evidence showing
that the award of just compensation should be only P1,800,000.00 and not P2,258.018.57 as awarded by said respondent
Court.”

The issue of the disqualification of Aquino
as commissioner deserves scant attention. 
Under Section 8, Rule 67 of the Rules of Court, the court may take the
following actions on the report submitted by commissioners:  it may “accept the report and render judgment
in accordance therewith; or for cause shown, it may recommit the same to the
commissioners for further report of facts, or it may set aside the report and
appoint new commissioners, or it may accept the report in part and reject it in part; x x x.” In
other words, the report of commissioners is merely advisory and recommendatory
in character as far as the court
is concerned.^[9]

Hence, it hardly matters that one of the three commissioners had
a preconceived and biased valuation of the condemned property.  The veracity or exactitude of the estimate
arrived at by the commissioners may not be adversely affected thereby.  In fact, the report of only two commissioners
may suffice if the third commissioner dissents from the former’s
valuation.^[10]
Indeed, the participation of an allegedly biased commissioner may not result in the total disregard of an
appraisal report in the absence of proof that the two other commissioners were
unduly influenced by their allegedly
partial colleague.

The determination of just compensation for a condemned property
is basically a judicial function.  As the
court is not bound by the commissioners’ report, it may make such order or
render such judgment as shall secure to the plaintiff the property essential to the exercise of its
right of condemnation, and to the defendant just compensation for the property
expropriated.  For that matter, this Court may even substitute its
own estimate of the value as gathered
from the record.^[11] Hence, although the determination of just
compensation appears to be a factual matter which is ordinarily outside the
ambit of its jurisdiction, this Court may disturb the lower
court’s factual finding on appeal when there is clear error or grave abuse of discretion.^[12]

We hold that the courts below made an erroneous determination of just compensation in this case.

In the first place, the just compensation prescribed herein is
based on the commissioners recommendation which in turn is founded on the
“audited” statements of Amerex that the
property is worth P2,258,018.57.  As earlier pointed out, while the court may
accept the commissioners’ report and render judgment in accordance therewith, it may not do so without considering
whether the report is supported
by evidence.  The court is also
duty-bound to determine whether the commissioners had discharged the trust
reposed in them
according to well-established
rules and formed their judgment upon
correct legal principles for they are not supposed to act ad libitum.^[13]

Amerex’s “audited” statement
on the acquisition cost, cost of painting and major repairs, taxes, and insurance premiums which totals P2,107,479.48, contains the following certification:

“We have checked the details of the transactions indicated in the
foregoing schedule of Land and Building Account as at January 31, 1976 with the books and records of Amerex Electronics (Philippines) Corporation which were
presented to us for examination and have found the details to be in accordance
therewith.  We have not
made an audit of the books of accounts
of Amerex Electronics (Philippines)
Corporation.

Sycip, Gorres, Velayo & Co.

PTR No. 4709791

January 23, 1976

Makati, Rizal“

(Underscoring supplied.)^[14]

Amerex’s other “audited”
statement on the maintenance expenses of the property wherein it allegedly
incurred the amount of P150,539.09
contains a similar certification by the same accounting firm specifically stating that the auditor did not make an
audit of the books of accounts of Amerex.^[15]

It is clear from these certifications that the accounting firm
which issued them merely compared the figures in the schedules or
“audited” statements with those of the records and books of accounts of Amerex.  As no investigation was made as to the
veracity of the figures in the account, there was no audit in the real sense of
the term.  To audit is to examine an
account, compare it with the vouchers, adjust the same, and to state the
balance, by persons legally authorized for the purpose.^[16]
While the word “audit” is sometimes restricted to a mere mathematical
process, it generally includes investigation, the weighing of evidence, and
deciding whether items should or should not be included in the account.^[17]
Audit involves the exercise of discretion;
it is a quasi-judicial function.^[18] The accuracy of the “audited” statements herein is
therefore suspect.

Besides the fact that the petitioner was not furnished a copy of the audited
statements which were also not introduced in evidence, Enrique P. Esteban, vice-president and treasurer of Amerex, and even a representative of the accounting
firm, were likewise not
presented during the trial thereby depriving petitioner herein of the opportunity to cross-examine them.  It would therefore be unfair to the
petitioner to hold it bound by the “audited”
statements of Amerex which may have been premised on
false or mistaken data.^[19]

This Court having declared as unconstitutional the mode of fixing
just compensation under P.D. No. 794,^[20]
just compensation should be determined either at the time of the actual taking
of the government or at the time of the judgment of the court, whichever comes first.^[21]

In this case, the issuance of the condemnation order and the
actual taking of the property both occurred in October, 1975.  Accordingly, the appraisal made by Ampil Realty and Appraisal Co., Inc. on June 5, 1975, which date is nearest to that of the actual taking of the
property, should be the basis for the determination
of just compensation the record being bereft of any indications of anomaly appertaining thereto.  It
should be added that Wenceslao Ampil,
the president of said appraisal firm, testified at the trial and therefore
petitioner had the opportunity to confront him and to question his report.  The reasonableness of the June 5, 1975
appraisal fixing at P2,400,000 the fair market value of the property, is
bolstered by the fact that on June 4, 1975, Traders Commodities Corporation,
through its lawyer, Sedfrey A. Ordonez, offered to
buy the property at P2,750,000.^[22] It must be emphasized, however, that legal
interest on the balance of the just compensation of P2,400,000 after deducting
the amount of P1,303,470 which had been delivered to Amerex,
should be paid by petitioner from the time the government actually took over
the property.^[23]

Much as we realize the need of the government, under these trying times,
to get the best possible price for the expropriated
property considering the ceaseless and continuing necessity for schools, we
cannot agree with the petitioner that the just compensation for the property
should be the price it commanded when it was first offered for sale to the City
School Board of Manila.  Petitioner
failed to substantiate its claim that the property is worth the lower amount of
P1,800,000.  In contrast, Amerex submitted evidence consisting of the
aforesaid June 5, 1975 appraisal report which fixed the fair market value of the property at P2,400,000.

WHEREFORE, the just compensation of the property
expropriated for the use of the Manuel de la Fuente
High School (Don Mariano Marcos
Memorial High School) is hereby fixed at Two Million Four Hundred Thousand Pesos (P2,400,000.00).  After deducting
the amount of P1,303,470.00 therefrom,
the petitioner shall pay the
balance with legal interest from October 13, 1975.

SO ORDERED.

Feliciano and Cortes, JJ., concur.

Gutierrez, Jr., no-part, because earlier role in the case.

Bidin, JJ., no part, participated in appealed decision.

^[1]
Original Record on Appeal, p. 3.

^[2]
Real Property Tax Code.

^[3]
Original Record on Appeal, p. 47-A.

^[4]
Exh.
1.

^[5]
Exh.
2.

^[6]
Exh.
3.

^[7]
Original Record on Appeal, pp. 82-83.

^[8]
Judge Jose C. Colayco, presiding.

^[9]
Municipality of Daet vs. Court of Appeals, L-35861, October 18, 1979, 93 SCRA 503.

^[10]
See:  Republic vs. Garcellano, 103 Phil. 231.

^[11]
Republic vs. Santos, G.R. No.
57564, January
8, 1986, 141 SCRA 30 citing Manila
Railroad Company vs. Velasquez, 32 Phil. 286.

^[12]
City Government of Toledo City
vs. Fernandos, L-45144, April 15, 1988, 160 SCRA 285.

^[13]
Municipality of Daet vs. Court of Appeals, supra.

^[14]
Original Record on Appeal, p. 47-B.

^[15]
Supra, p. 47-c.

^[16]
Moreno’s Philippine Law Dictionary,
3rd ed., citing Ynchausti
& Co. vs. Wright, 47 Phil. 885.

^[17]
4A Words and Phrases 578 citing Travelers’ Ins. Co. vs. Pierce Engine Co., 123 N.W. 643, 644, 141 Wis.
103.

^[18]
Mabuhay vs. Serina,
L-28636, June 29, 1982, 114
SCRA 642.

^[19]
See:  Republic of the Philippines vs. Urtula,
110 Phil. 263.

^[20]
Export Processing Zone Authority vs. Dulay, G.R. No. 59603, April 29, 1987, 149 SCRA 305.

^[21]
Manotok vs. National Housing Authority, G.R.
No. 55166, May 21, 1987, 150 SCRA 89.

^[22]
Exh.
6.

^[23]
Benguet Consolidated, Inc. vs. Republic of the
Philippines, G.R. No. 71412, August 15, 1986, 143 SCRA 466.