In eminent domain cases, the government must justly compensate property owners for their losses. This means paying not only the fair market value of the property at the time of taking but also providing legal interest to account for delays in payment. This ruling clarifies how legal interest should be applied in expropriation cases, especially in light of changes to interest rates mandated by the Bangko Sentral ng Pilipinas (BSP). The Supreme Court emphasized that landowners are entitled to interest on the unpaid balance of just compensation from the time of taking until full payment, ensuring they receive the true value of their property.

Eminent Domain: When Does the Clock Start Ticking for Just Compensation?

This case, Republic of the Philippines v. Leonor Macabagdal, arose from the expropriation of a 200-square meter lot in Valenzuela City for the construction of the C-5 Northern Link Road Project. The Republic, represented by the Department of Public Works and Highways (DPWH), initiated the proceedings in 2008. The central legal question revolved around the correct application of legal interest on the unpaid balance of just compensation due to the landowner, Leonor Macabagdal. Specifically, the dispute concerned the applicable interest rate and the period during which it should be applied, considering changes in the legal interest rate prescribed by the BSP.

The factual backdrop of the case is crucial. The DPWH filed a complaint for expropriation and obtained a writ of possession on May 5, 2008, effectively taking the property at that time. An initial deposit of P550,000.00 was made, based on the zonal value of the land. The Regional Trial Court (RTC) later determined the just compensation to be P9,000.00 per square meter, significantly higher than the initial zonal valuation. The RTC also imposed a legal interest rate of 12% per annum on the unpaid balance from the time of taking until full payment. The DPWH appealed, questioning both the just compensation amount and the imposed interest rate.

The Court of Appeals (CA) affirmed the RTC’s decision, leading the DPWH to elevate the issue to the Supreme Court. The DPWH argued that the interest rate should be adjusted to 6% per annum after June 30, 2013, in accordance with BSP-MB Circular No. 799, Series of 2013. This circular reduced the legal interest rate for loans and forbearances of money in the absence of stipulation from 12% to 6%. The Supreme Court had to determine whether this circular applied to expropriation cases and, if so, how it affected the computation of legal interest.

The Supreme Court began its analysis by reiterating the fundamental principle of just compensation. It is not intended to enrich the landowner but to indemnify them for the actual loss sustained due to the taking of their property. The Court underscored that just compensation must consider the market value of the property at the time of taking, as it is at that moment that the loss is realized. Furthermore, the Court acknowledged that the loss extends beyond the physical property itself; it also includes the potential income the property could have generated.

The Court then addressed the issue of legal interest. Citing prior jurisprudence, the Court explained that interest is imposed to compensate the landowner for the delay in receiving full payment for their property. This delay essentially constitutes a forbearance of money on the part of the government. As the Court articulated in Apo Fruits Corp. v. Land Bank of the Phils., 647 Phil. 251, 285 (2010):

interest is due and should be paid to compensate for the unpaid balance of this principal sum after taking has been completed.

This interest is integral to achieving the “real, substantial, full, and ample” value of the expropriated property, thereby ensuring compliance with the constitutional mandate of just compensation. The Supreme Court recognized that from the date of taking in this case—May 5, 2008—until the final determination of just compensation, the landowner had only received a provisional deposit. This left a significant unpaid balance, justifying the imposition of legal interest to account for the delay.

The crucial point of contention was the applicable interest rate. The DPWH correctly argued that the 12% per annum rate was only applicable until June 30, 2013. After this date, BSP-MB Circular No. 799, Series of 2013, mandated a reduced rate of 6% per annum. The Supreme Court affirmed the applicability of this circular to expropriation cases, explicitly stating that delays in payment constitute a forbearance of money. This position aligns with established jurisprudence, as seen in cases like Evergreen Manufacturing Corp. v. Republic and Republic v. Cebuan.

To clearly illustrate the applicable interest rates and periods, consider the following table:

Period	Interest Rate	Basis
May 5, 2008 – June 30, 2013	12% per annum	Pre-existing legal rate
July 1, 2013 – Full Payment	6% per annum	BSP-MB Circular No. 799, Series of 2013

The Supreme Court clarified a critical aspect regarding the accrual of legal interest. While the lower courts computed the interest from the filing of the complaint, the Supreme Court specified that interest should accrue from the date of taking—May 5, 2008—when the writ of possession was issued. It is from this date that the deprivation of property is established, and consequently, the landowner’s entitlement to interest begins.

This adjustment underscores the importance of pinpointing the precise moment of taking in expropriation cases. The taking marks the point at which the landowner loses control and benefit of their property, and it is from this juncture that the obligation to provide just compensation, including interest for any delay, arises. By linking the accrual of interest to the actual taking, the Supreme Court reinforced the principle that landowners should be fully compensated for the period during which they are deprived of their property’s use and value.

FAQs

What was the key issue in this case?	The main issue was determining the correct legal interest rate on the unpaid balance of just compensation in an expropriation case, particularly considering the effect of BSP-MB Circular No. 799, Series of 2013, which reduced the legal interest rate.
When does legal interest start accruing in expropriation cases?	Legal interest accrues from the date of the taking of the property, which is typically the date the writ of possession is issued to the government, not necessarily the date the expropriation complaint is filed.
What was the interest rate before July 1, 2013?	Before July 1, 2013, the legal interest rate was 12% per annum, as per prevailing jurisprudence and central bank regulations at the time.
What is the current legal interest rate as of July 1, 2013?	As of July 1, 2013, the legal interest rate was reduced to 6% per annum by BSP-MB Circular No. 799, Series of 2013.
Does BSP Circular No. 799 apply to expropriation cases?	Yes, the Supreme Court has affirmed that BSP Circular No. 799 applies to expropriation cases, as the delay in payment of just compensation constitutes a forbearance of money.
What constitutes just compensation in expropriation?	Just compensation includes not only the fair market value of the property at the time of taking but also interest on the unpaid balance from the time of taking until full payment.
Why is legal interest imposed in expropriation cases?	Legal interest is imposed to compensate the landowner for the delay in receiving full payment for their property, recognizing that the delay constitutes a forbearance of money on the part of the government.
What if the landowner already received a provisional deposit?	The provisional deposit is deducted from the total just compensation due, and interest is computed on the remaining unpaid balance from the date of taking until full payment.

In conclusion, the Supreme Court’s decision in Republic v. Macabagdal provides essential clarification on the application of legal interest in expropriation cases. It affirms that landowners are entitled to interest on the unpaid balance of just compensation from the date of taking, with the interest rate subject to adjustments based on prevailing BSP regulations. This ruling ensures that landowners receive fair and timely compensation for their expropriated properties, upholding the constitutional mandate of just compensation.

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 v. Leonor Macabagdal, G.R. No. 227215, January 10, 2018