In expropriation cases, the Supreme Court clarified that legal interest is unwarranted if the government promptly deposits the full zonal value of the property before taking possession. The Court also ruled that consequential damages are inappropriate when the entire property is expropriated, as there’s no remaining portion to suffer a loss in value. The decision provides clarity on the government’s obligations and the property owner’s entitlements in expropriation proceedings, ensuring fair compensation and preventing undue financial burdens on either party.

From Public Use to Private Loss: Determining Fair Compensation in Expropriation Cases

This case revolves around the Republic of the Philippines’ expropriation of Arlene R. Soriano’s land for the North Luzon Expressway (NLEX)-Harbor Link Project. The central legal question is whether Soriano is entitled to legal interest on the just compensation and consequential damages, considering the government deposited the zonal value before taking possession. This issue highlights the delicate balance between public interest and private property rights in expropriation proceedings.

The Republic, represented by the Department of Public Works and Highways (DPWH), initiated the expropriation proceedings under Republic Act (RA) No. 8974, aimed at facilitating the acquisition of land for national infrastructure projects. The DPWH deposited P420,000.00, representing 100% of the zonal value of the 200-square-meter property, with the Regional Trial Court (RTC). Subsequently, the RTC issued a Writ of Possession and a Writ of Expropriation. The trial court initially appointed a Board of Commissioners to determine just compensation but later revoked the appointment due to their failure to submit a report. The RTC then considered the evidence presented by the DPWH, which included a certification from the Bureau of Internal Revenue (BIR) indicating a zonal value of P2,100.00 per square meter. It also noted the property’s condition and location, finding it poorly maintained and located in an underdeveloped area.

The RTC ruled in favor of the Republic, declaring its right to acquire the land and ordering it to pay Soriano P2,100.00 per square meter, totaling P420,000.00, as just compensation. The court also imposed legal interest at 12% per annum from the time of taking possession and ordered the Republic to pay consequential damages, including transfer taxes. The Republic filed a Motion for Reconsideration, arguing that the interest rate should be lowered to 6% based on Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013. The RTC modified its decision, reducing the interest rate to 6% per annum but basing it on Article 2209 of the Civil Code, which pertains to indemnity for damages.

The Republic then elevated the case to the Supreme Court, arguing that Soriano was not entitled to legal interest because there was no delay in payment. It also contended that consequential damages were unwarranted since the entire property was expropriated, and that Soriano, not the Republic, should be responsible for the transfer taxes. The Supreme Court partly granted the petition, clarifying several key aspects of expropriation law. One of the primary issues was the applicable interest rate on just compensation. The RTC had initially relied on National Power Corporation v. Angas, but the Supreme Court clarified that this ruling had been overturned by Republic v. Court of Appeals.

The Supreme Court emphasized that the payment of just compensation for expropriated property constitutes an effective forbearance on the part of the State. A forbearance, in this context, refers to the act of refraining from enforcing a right, debt, or obligation. In Republic v. Court of Appeals, the Court held that just compensation due to landowners amounted to an effective forbearance on the part of the State. The Court then applied the Eastern Shipping Lines ruling, fixing the applicable interest rate at 12% per annum from the time the property was taken until the full amount of just compensation was paid. However, it is important to note that this ruling was made before the recent circular of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, Series of 2013, which took effect on July 1, 2013.

The BSP-MB Circular No. 799, Series of 2013, set the prevailing rate of interest for loans or forbearance of money at six percent (6%) per annum, in the absence of an express contract as to such rate of interest. Notwithstanding these considerations, the Court found that the imposition of interest in this specific case was unwarranted. The Republic had deposited with the trial court the amount representing the zonal value of the property before its taking, as evidenced by the acknowledgment receipt signed by the Branch Clerk of Court. In multiple rulings, the Court has established that the award of interest serves as damages for delay in payment.

The primary goal of awarding interest is to ensure prompt payment of the land’s value and limit the owner’s opportunity loss. When there is no delay in the payment of just compensation, the imposition of interest is not justified. Records of this case revealed that the Republic did not delay the payment, depositing the full amount due to Soriano on January 24, 2011, well before the RTC ordered the issuance of a Writ of Possession and a Writ of Expropriation on May 27, 2011. The trial court deemed the deposited amount just, fair, and equitable, considering factors such as size, condition, location, tax declaration, and zonal valuation. The Supreme Court therefore concluded that the imposition of interest was unjustified and should be deleted, given the Republic’s prompt payment of the full amount of just compensation.

The Court also addressed the issue of consequential damages, which are awarded when only a part of a property is expropriated, causing the remaining portion to suffer a decrease in value. In this case, the entire area of Soriano’s property was being expropriated. Therefore, the Court held that consequential damages were not applicable. As the Supreme Court stated in Republic of the Philippines v. Bank of the Philippine Islands:

The general rule is that the just compensation to which the owner of the condemned property is entitled to is the market value. Market value is that sum of money which a person desirous but not compelled to buy, and an owner willing but not compelled to sell, would agree on as a price to be paid by the buyer and received by the seller. The general rule, however, is modified where only a part of a certain property is expropriated. In such a case, the owner is not restricted to compensation for the portion actually taken, he is also entitled to recover the consequential damage, if any, to the remaining part of the property.

Since Soriano’s entire property was expropriated, there was no remaining portion that could suffer an impairment or decrease in value as a result of the expropriation. Thus, the Supreme Court ruled that the award of consequential damages was improper.

The final issue addressed by the Supreme Court was the responsibility for paying transfer taxes, specifically the capital gains tax and documentary stamp tax. According to Sections 24(D) and 56(A)(3) of the 1997 National Internal Revenue Code (NIRC), the capital gains tax due on the sale of real property is the liability of the seller. The capital gains tax is a tax on passive income, and the seller generally shoulders the tax. In line with this, the BIR, in its BIR Ruling No. 476-2013, designated the DPWH as a withholding agent to withhold the six percent (6%) final withholding tax in the expropriation of real property for infrastructure projects. As far as the government is concerned, the capital gains tax remains a liability of the seller.

However, the Supreme Court found the Republic’s denial of liability for the documentary stamp tax to be inconsistent. While the Republic cited Section 196 of the 1997 NIRC, this provision does not explicitly state that the seller is responsible for the documentary stamp tax. Instead, the BIR, in Revenue Regulations No. 9-2000, states that all parties to a transaction are primarily liable for the documentary stamp tax.

SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. –

(a) In General. – The documentary stamp taxes under Title VII of the Code is a tax on certain transactions. It is imposed against “the person making, signing, issuing, accepting, or transferring” the document or facility evidencing the aforesaid transactions. Thus, in general, it may be imposed on the transaction itself or upon the document underlying such act. Any of the parties thereto shall be liable for the full amount of the tax due: Provided, however, that as between themselves, the said parties may agree on who shall be liable or how they may share on the cost of the tax.

In this case, there was no agreement on who would bear the documentary stamp tax. However, the Court considered the Republic’s Citizen’s Charter, which serves as a guide for the DPWH’s procedure in acquiring real property through expropriation under RA 8974. The Citizen’s Charter explicitly states that the documentary stamp tax, transfer tax, and registration fee due on the transfer of the title of land in the name of the Republic shall be shouldered by the implementing agency of the DPWH, while the capital gains tax shall be paid by the affected property owner. Given this, the Supreme Court held that it would be unjust to allow the Republic to reject liability in the face of its Citizen’s Charter, which clearly assumes responsibility for the documentary stamp tax.

FAQs

What was the key issue in this case?	The key issue was whether the property owner was entitled to legal interest and consequential damages in an expropriation case, given that the government had deposited the zonal value of the property before taking possession. It also involved determining who should bear the capital gains and documentary stamp taxes.
When is legal interest justified in expropriation cases?	Legal interest is justified only when there is a delay in the payment of just compensation. If the government promptly deposits the full amount due to the property owner, the imposition of interest is unwarranted.
What are consequential damages?	Consequential damages are awarded when only a part of a property is expropriated, causing the remaining portion to suffer an impairment or decrease in value. They compensate the owner for the loss in value of the remaining property.
When are consequential damages appropriate?	Consequential damages are appropriate only when a portion of the property remains after the expropriation, and that remaining portion suffers a loss in value due to the taking. If the entire property is expropriated, consequential damages are not applicable.
Who is responsible for paying the capital gains tax in an expropriation?	According to the National Internal Revenue Code, the capital gains tax is the liability of the seller, which in this case is the property owner. The government, however, acts as a withholding agent for this tax.
Who is responsible for paying the documentary stamp tax?	The BIR states that all parties to a transaction are primarily liable for the documentary stamp tax. However, the DPWH’s Citizen’s Charter assumes responsibility for the documentary stamp tax, transfer tax, and registration fee.
What is the significance of the DPWH’s Citizen’s Charter in this case?	The DPWH’s Citizen’s Charter serves as its notice to the public regarding the procedure it will generally take in cases of expropriation under RA 8974. It indicates that the DPWH will shoulder the documentary stamp tax, transfer tax, and registration fee.
What was the court’s final decision on the taxes and damages?	The court ordered the property owner to pay the capital gains tax and the DPWH to pay the documentary stamp tax, transfer tax, and registration fee. The imposition of interest on the payment of just compensation, as well as the award of consequential damages, were deleted.

In conclusion, this case provides significant clarification on the nuances of expropriation law, specifically regarding legal interest, consequential damages, and tax liabilities. The Supreme Court’s decision underscores the importance of prompt payment by the government and clarifies the circumstances under which consequential damages are warranted. By clarifying these issues, the ruling ensures fairer outcomes in expropriation cases, balancing the public interest with the rights of private property owners.

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 OF THE PHILIPPINES VS. ARLENE R. SORIANO, G.R. No. 211666, February 25, 2015