In a significant ruling, the Supreme Court has clarified that when the government acquires private property through a voluntary sale agreement, the landowner cannot later claim interest on the purchase price if the sale contract does not include a provision for such interest. This decision emphasizes the importance of adhering to the terms of freely negotiated contracts, even in situations where the government initially took possession of the property before the formal sale. The Court distinguished this scenario from cases involving eminent domain or expropriation, where interest is typically awarded to compensate landowners for the delay in receiving just compensation. Essentially, this ruling reinforces the principle that contractual obligations, when entered into voluntarily, should be honored and enforced by the courts.

From Possession to Purchase: Can a Landowner Claim Interest After a Voluntary Sale to the Government?

The Jose Gamir-Consuelo Diaz Heirs Association, Inc. (respondent) owned a parcel of land in Davao City. The Department of Public Works and Highways (DPWH), representing the Republic of the Philippines (petitioner), took possession of this land in 1957 for use as part of Sta. Ana Avenue, a national road. However, it wasn’t until August 9, 2005, after a series of negotiations, that the parties executed a Deed of Absolute Sale, agreeing on a purchase price of P275,099.24. The respondent received the full consideration, and the property was registered in the petitioner’s name.

Subsequently, on November 15, 2006, the respondent filed a complaint, asserting that the agreed-upon price reflected the property’s value in 1957, not the current value, and sought payment of interest from 1957. The Regional Trial Court (RTC) dismissed the complaint. The Court of Appeals (CA) reversed the RTC decision, relying on Apo Fruits Corporation v. Land Bank of the Philippines, which stated that legal interest should accrue from the time of the taking until actual payment to ensure just compensation. The CA reasoned that the Deed of Absolute Sale did not waive the payment of interest, as just compensation in eminent domain cases is a judicial function, and the obligation to pay interest arises from law, independent of the contract of sale. The central question before the Supreme Court was whether the respondent was entitled to receive payment of interest despite the absence of any stipulation in the Deed of Absolute Sale.

The Supreme Court reversed the CA’s decision, emphasizing the distinction between expropriation and voluntary sale. The Court recognized that while eminent domain is the inherent power of the state to take private property for public use with just compensation, it is not absolute. The Constitution protects individuals from being deprived of property without due process and mandates just compensation when private property is taken for public use. Just compensation encompasses not only the correct amount but also payment within a reasonable time. However, the Court noted that these principles apply primarily in expropriation cases.

The Court highlighted that in a voluntary sale, the parties have the freedom to negotiate the terms and conditions of the contract. In this case, the Deed of Absolute Sale represented the agreement reached between the petitioner and the respondent after a series of negotiations. The Court then stated that:

On a final note, we point out that the parties entered into a negotiated sale transaction; thus, the Republic did not acquire the property through expropriation.

In expropriation, the Republic’s acquisition of the expropriated property is subject to the condition that the Republic will return the property should the public purpose for which the expropriation was done did not materialize. On the other hand, a sale contract between the Republic and private persons is not subject to this same condition unless the parties stipulate it.

The respondents in this case failed to prove that the sale was attended by a similar condition. Hence, the parties are bound by their sale contract transferring the property without the condition applicable in expropriation cases.

The Court further explained that the payment of interest in expropriation cases aims to compensate landowners for the income they would have earned had they been promptly compensated. However, this rationale does not automatically apply to voluntary sales, where the parties can negotiate the terms of the contract, including the payment of interest. In such cases, the laws relating to contracts govern.

The Court observed that the respondent agreed to sell its property for a specific amount but failed to include a stipulation for the payment of interest in the Deed of Absolute Sale. Under Section 9, Rule 130 of the Revised Rules of Court, also known as the Parol Evidence Rule, when an agreement is reduced to writing, it is presumed to contain all the terms agreed upon. The Supreme Court has stated that:

Per this rule, reduction to written form, regardless of the formalities observed, “forbids any addition to, or contradiction of, the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract.”

This rule is animated by a perceived wisdom in deferring to the contracting parties’ articulated intent. In choosing to reduce their agreement into writing, they are deemed to have done so meticulously and carefully, employing specific – frequently, even technical – language as are appropriate to their context.

The Court also stated that the Parol Evidence Rule admits exceptions, such as when there is an ambiguity in the contract, a mistake, or a failure to express the true intent of the parties. However, the respondent did not raise any of these issues in its complaint. The Court further noted that the respondent’s prior demand for interest was made before the execution of the Deed of Absolute Sale, implying that the respondent abandoned this claim when it entered into the contract without a stipulation for interest.

The Supreme Court disagreed with the CA’s assertion that the respondent had no choice but to sign the Deed of Absolute Sale. The Court pointed out that the respondent could have initiated expropriation proceedings or included a clause reserving the right to claim interest. In conclusion, the Supreme Court ruled that the respondent was not entitled to interest because it had voluntarily entered into a contract that did not provide for such payment.

FAQs

What was the key issue in this case?	The key issue was whether the respondent was entitled to receive payment of interest on the agreed price of land sold to the government, notwithstanding the absence of any stipulation for such interest in the Deed of Absolute Sale.
What is eminent domain?	Eminent domain is the inherent power of a nation or sovereign state to take private property for public use, provided that just compensation is paid to the owner.
What is just compensation?	Just compensation is the full and fair equivalent of the property taken from its owner, including not only the correct amount but also the payment within a reasonable time from its taking.
What is the Parol Evidence Rule?	The Parol Evidence Rule, found in Section 9, Rule 130 of the Revised Rules of Court, states that when the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon, and extrinsic evidence is generally inadmissible to add to or vary its terms.
What is the difference between expropriation and voluntary sale?	Expropriation is the forced taking of private property by the government for public use, while a voluntary sale is a consensual transaction where the property owner willingly sells the property to the government.
Why did the CA rule in favor of the landowner?	The CA relied on the principle that interest should be paid from the time of taking to ensure just compensation, similar to expropriation cases, and that the Deed of Absolute Sale did not waive the right to claim interest.
Why did the Supreme Court reverse the CA’s decision?	The Supreme Court reversed the CA’s decision because the transaction was a voluntary sale, and the parties were free to negotiate the terms, including interest. The Deed of Absolute Sale did not include any provision for interest, and the landowner did not reserve the right to claim it.
What is the significance of the Deed of Absolute Sale in this case?	The Deed of Absolute Sale is significant because it is a written contract that represents the agreement between the parties. The absence of a stipulation for interest in the deed was interpreted as a waiver of the right to claim it.
Can a landowner claim interest if the government took possession of the property before the sale?	The Supreme Court clarified that unless there is a stipulation on payment of interest in the contract of sale, the landowner is not entitled to any payment of interest.

This Supreme Court ruling serves as a clear reminder of the binding nature of contracts and the importance of including all relevant terms in written agreements. It underscores that in voluntary sales to the government, the principles of contract law prevail, and landowners cannot later claim entitlements not explicitly provided for in the sale agreement. This case highlights the need for parties to carefully consider all aspects of a transaction before finalizing a contract to avoid future disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Republic vs. Jose Gamir-Consuelo Diaz Heirs Association, Inc., G.R. No. 218732, November 12, 2018