City Government of Pasay vs. Arellano University

Just compensation must be determined using a "totality of circumstances" approach, considering all relevant factors at the time of taking, not just a single tax assessment. Delayed payment of just compensation is treated as a forbearance of money, attracting legal interest at the rates prescribed by the BSP over time.

The dispute arose from the Pasay LGU's conversion of a portion of Arellano University's titled property into a public street without initiating expropriation proceedings or paying compensation. The existence of the street predated Arellano's purchase of the property in 1965, but no annotation was on the title. Arellano discovered the taking and filed a complaint for just compensation in 2015.

• Filed in RTC (Pasay City, Branch 108).
• RTC rendered an order (August 14, 2018) fixing just compensation at PHP 161,000.00 (based on 1978 tax assessment) plus 12% interest per annum from 1978.
• Both parties appealed to the CA.
• CA remanded the case to the RTC for proper recomputation of just compensation and applied a shifting interest rate (12% until June 30, 2013; 6% thereafter). It also affirmed awards for exemplary damages, attorney's fees, and costs of suit.
• Pasay LGU elevated the matter to the SC via a Petition for Review.

• Arellano University owns a parcel of land in Pasay City covered by TCT No. 149092.
• An 805-sq.m. portion of this land had been used as a public street (Menlo Street) since before Arellano's acquisition in 1965, but without any annotation on the title or payment of compensation.
• In 2015, Arellano filed a complaint for just compensation against the Pasay LGU.
• A board of commissioners composed of Pasay LGU officials appraised the property's 2017 fair market value at PHP 2,060/sq.m., using the 1978 tax assessment as a base and applying 6% annual interest.
• The RTC based its compensation award solely on the 1978 tax assessment value (PHP 200/sq.m.).

• The RTC's valuation based on the commissioners' report should be upheld as it followed prevailing guidelines.
• The interest rate on the just compensation award should be a constant 6% per annum from 1978.
• The awards of exemplary damages, attorney's fees, and costs of suit should be deleted, as the LGU acted in good faith and the delay was due to difficulty in determining the time of taking.

• Just compensation should be reckoned at the time of filing the complaint (2015), applying the principle of prompt payment.
• Its proposed computation, which adjusted for inflation and other economic factors, was more accurate.
• It prayed for exemplary damages and attorney's fees to penalize the LGU for appropriating property without due process.

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the CA erred in remanding the case for recomputation of just compensation.
  2. Whether the CA erred in applying a shifting BSP interest rate schedule instead of a constant 6% rate.
  3. Whether the CA erred in awarding exemplary damages, attorney's fees, and costs of suit.

• Procedural: N/A
• Substantive:
  1. No error in remand. The SC found the RTC's valuation based on incomplete data (only the 1978 tax assessment). Determining just compensation is a judicial function requiring consideration of all relevant factors ("totality of circumstances" test). Remand was proper for reception of evidence on these factors.
  2. No error in applying BSP interest rates. The SC affirmed that delayed payment of just compensation constitutes a forbearance of money. The applicable interest rate is that prescribed by the BSP over the relevant period (12% per annum until June 30, 2013; 6% per annum thereafter). The interest on the principal sum shall itself earn 6% interest from the finality of the SC decision until full payment.
  3. Error in awarding exemplary damages. The SC deleted the award. While the Pasay LGU was negligent, Arellano's own 47-year delay in demanding compensation constituted contributory negligence. The three requisites for exemplary damages were not fully met, particularly the need for oppressive or malevolent conduct, which was tempered by Arellano's inaction. The 6% indemnity on the total award was correctly characterized as temperate damages.

• Totality of Circumstances Test for Just Compensation — Just compensation is the fair and full equivalent of the property at the time of taking. It requires considering all facts: the property's condition, surroundings, improvements, capabilities, BIR zonal valuation, acquisition cost, value of similar properties, size, shape, location, and tax declarations. The SC applied this to invalidate a valuation based on a single, outdated tax assessment.
• Delayed Just Compensation as Forbearance of Money — When the State takes property before paying just compensation, the unpaid amount is considered a loan or forbearance of money from the owner. It thus earns legal interest at the rate set by the BSP (12% p.a. until June 30, 2013; 6% p.a. thereafter). The SC followed this prevailing doctrine.
• Requisites for Exemplary Damages — As distilled from the Civil Code and jurisprudence: (1) they may be imposed only in addition to moral, temperate, liquidated, or compensatory damages; (2) they are not recoverable as a matter of right; and (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive, or malevolent manner. The SC found the third requisite lacking due to the landowner's contributory negligence.

• "Just compensation means the value of the property at the time of the taking. It means a fair and full equivalent for the loss sustained. All the facts as to the condition of the property and its surroundings, its improvements and capabilities, should be considered." — Citing Export Processing Zone Authority v. Judge Dulay.
• "The concept of just compensation contemplates of just and timely payment; it embraces not only the correct determination of the amount to be paid to the landowner, but also the payment of the land within a reasonable time from its taking." — Citing Land Bank of the Phils. v. Department of Agrarian Reform Adjudication Board.

• Export Processing Zone Authority v. Judge Dulay — Established that tax assessment values are not controlling in determining just compensation; the court must make its own independent valuation.
• Republic v. Court of Appeals (2002) — Overturned prior jurisprudence and characterized the delayed payment of just compensation as a forbearance of money, applying the Eastern Shipping Lines doctrine on interest rates.
• Secretary of Public Works and Highways v. Spouses Tecson — Cited and distinguished; the SC noted that this case did not apply a flat 6% rate but tracked the shifting BSP rates over time.
• Evergreen Manufacturing Corp. v. Republic — Applied the legal interest rate on forbearances of money to an award of interest on delayed just compensation.

• 1987 Constitution, Art. III, Sec. 9 — "Private property shall not be taken for public use without just compensation."
• Civil Code, Art. 2229 — Exemplary damages are imposed by way of example or correction for the public good.
• Civil Code, Art. 2234 — Exemplary damages may be imposed in addition to moral, temperate, liquidated, or compensatory damages.
• Civil Code, Art. 2208 — Allows for the award of attorney's fees and expenses of litigation when exemplary damages are awarded.
• BSP Monetary Board Circular No. 799, Series of 2013 — Reduced the legal rate of interest for loans or forbearance of money from 12% to 6% per annum effective July 1, 2013.

• J. Caguioa (Concurring) — Agreed with the result but reiterated his reservation about categorizing delayed just compensation as a "forbearance of money." He argued that interest should be considered part of just compensation itself, not a consequence of a loan-like obligation.