Jose Co Lee vs. City of Olongapo

A local government unit's exercise of eminent domain requires a valid and definite offer to the property owner, including a good-faith effort to renegotiate if the owner hints at a better price, and the trial court must conduct a full-blown hearing on the owner's affirmative defenses, the absence of which violates due process and ousts the court of jurisdiction.

Jose Co Lee is the registered owner of a parcel of land in East Tapinac, City of Olongapo. The Sangguniang Panlungsod of the City of Olongapo passed Ordinance No. 12, Series of 2012, reclassifying and rezoning certain properties for a mixed-use development plan that included a new civic center complex. This ordinance was later amended by Ordinance No. 19, Series of 2014.

Jose Co Lee is the registered owner of a parcel of land located in East Tapinac, City of Olongapo. On July 4, 2012, the Sangguniang Panlungsod of the City of Olongapo passed Ordinance No. 12, Series of 2012, reclassifying and rezoning certain government properties into an institutional/mixed zone and mixed-use development for the construction of a new civic center complex. The ordinance was later amended by Ordinance No. 19, Series of 2014.

On December 23, 2014, Architect Tony Kar M. Balde III, the City of Olongapo's planning and development coordinator, sent Lee a Notice of Negotiated Sale or Expropriation, informing him of the approved mixed-use development plan affecting his property and offering to purchase it at a negotiated price. In a letter dated March 24, 2015, Balde reiterated the plan and offered PHP 13,824,000.00 for the property. Lee rejected the offer.

When the parties failed to reach an agreement, the City of Olongapo, represented by Mayor Rolen C. Paulino, filed a Complaint for Expropriation. On August 28, 2015, the City filed a Manifestation with Motion stating it had deposited PHP 239,760.00 with the Office of the Clerk of Court and prayed to be allowed to enter the property. Lee filed his Answer, alleging that the Complaint stated no cause of action, the expropriation was not for public use, and the Sangguniang Panlungsod failed to pass a board resolution authorizing Mayor Paulino to file the Complaint and sign the verification of non-forum shopping. He also argued that the proper payment of just compensation should be based on the Bureau of Internal Revenue's current relevant valuation, not 15 percent of the fair market value based on the tax declaration.

During the hearing on May 5, 2016, Lee was called to the witness stand by his counsel to identify his Judicial Affidavit, but the City's counsel objected, arguing the testimony was not offered to prove affirmative defenses. The trial court gave Lee time to file a comment to the objection. On June 30, 2016, the trial court deemed the case submitted for resolution. The trial court subsequently issued an Order dismissing Lee's affirmative defenses and declaring that the City of Olongapo had the lawful right to expropriate his property upon deposit of an additional PHP 235,560.00. Lee's motion for reconsideration was denied. The Court of Appeals affirmed the trial court's ruling, holding that the City of Olongapo complied with all requisites for a valid expropriation and dismissing Lee's affirmative defenses.

• Authority to Expropriate: Petitioner maintained that Ordinance No. 15 does not give Mayor Paulino authority to file the Complaint for Expropriation and sign its verification and certificate of non-forum shopping.
• Valid Offer: Petitioner argued that there was no valid offer from the City of Olongapo since Balde had no authority to negotiate for the purchase of the property.
• Public Use: Petitioner insisted that the expropriation of his property was not for public use but for the benefit of SM Prime Holdings, Inc.
• Due Process: Petitioner claimed he was denied due process when no hearing was conducted by the trial court to determine the necessity of expropriation and without receiving evidence on his claims.
• Just Compensation and Immediate Possession: Petitioner averred that the trial court erred in allowing the City to take immediate possession upon depositing only PHP 235,560.00, arguing that under The Right-of-Way Act, immediate possession requires a deposit of 100% of the land's value based on the BIR's current relevant valuation.

• Due Process: Respondent countered that there was no denial of petitioner's right to procedural due process, as he was permitted to identify his judicial affidavit and was given an opportunity to be heard through his Answer containing affirmative defenses.
• Public Use: Respondent argued that the property will be used for the development of its new civic center complex and that the property was not covered by the lease agreement between the City and SM Prime Holdings, Inc.
• Authority to Negotiate: Respondent maintained that Balde's actions were done in the regular performance of his duties and no bad faith could be imputed against him when he negotiated with petitioner.
• Authority to File Complaint: Respondent argued that Ordinance No. 15 is sufficient to clothe Mayor Paulino with the legal personality to sign the complaint and its verification and certification of non-forum shopping.
• Immediate Possession: Respondent contended that a local government unit can take immediate possession upon filing the complaint and depositing 15% of the property's fair market value based on its current tax declaration, all of which the City complied with.

• Authority to Institute Expropriation: Whether Ordinance No. 15 sufficiently clothed Mayor Paulino with the authority to file the Complaint for Expropriation and sign the verification and certification of non-forum shopping.
• Validity of the Offer: Whether the City of Olongapo made a valid and definite offer to the property owner before instituting expropriation proceedings.
• Procedural Due Process: Whether the trial court violated the petitioner's right to procedural due process by overruling his affirmative defenses without conducting a full-blown trial and hearing.
• Applicability of the Right-of-Way Act: Whether the Right-of-Way Act or the Local Government Code applies to the deposit required for immediate possession of the expropriated property.

• Authority to Institute Expropriation: Yes. Ordinance No. 15 is sufficient to clothe Mayor Paulino with authority to file the Complaint without the need for another Sangguniang Panlungsod resolution authorizing him to sign the verification and certification of non-forum shopping.
• Validity of the Offer: No. The City of Olongapo failed to comply with the required valid and definite offer because there was no evidence that it exerted effort to renegotiate with petitioner after he rejected the initial offer.
• Procedural Due Process: Yes. The trial court violated petitioner's right to procedural due process by overruling his affirmative defenses without conducting a trial and hearing, thereby ousting itself of jurisdiction.
• Applicability of the Right-of-Way Act: The Local Government Code applies. The Right-of-Way Act applies only when the purpose of the expropriation is for a right-of-way site or national infrastructure project; otherwise, the Local Government Code's 15% deposit requirement governs for LGUs.

• Authority to Institute Expropriation: Section 455 of the Local Government Code empowers the city mayor to represent the city in all its business transactions and sign on its behalf all bonds, contracts, and obligations upon authority of the sangguniang panlungsod. Since Ordinance No. 15 expressly authorized Mayor Paulino to institute expropriation proceedings, it would be incongruous to allow him to initiate the proceeding but deny him the authority to sign the verification and certification of non-forum shopping that is part of the Complaint.
• Validity of the Offer: Article 35 of the IRR of the Local Government Code requires that if the owner is willing to sell but at a higher price, the local chief executive shall call them to a conference to reach an agreement. As elucidated in City of Manila vs. Alegar Corp., when the property owner rejects the offer but hints for a better price, the government must exhaust all reasonable efforts to obtain the land by agreement. Here, after petitioner rejected the offer, Balde or respondent exerted no effort to renegotiate, failing to comply with the valid and definite offer requisite.
• Procedural Due Process: Rule 67, Section 3 of the Rules of Court allows a defendant to file an answer stating objections and defenses to the taking of their property. As suggested in Robern Development Corp. vs. Quitain, affirmative defenses necessitating the presentation of evidence aliunde must be addressed in a full-blown trial and hearing. Petitioner's assertion that the taking was not for public use required presentation of evidence. By overruling these defenses without trial, the trial court denied petitioner the opportunity to be heard. A violation of the fundamental right to due process ousts the court of jurisdiction, rendering its decision void.
• Applicability of the Right-of-Way Act: The Right-of-Way Act governs the acquisition of real property needed as right-of-way site or location for national government infrastructure projects. Its Section 3 states that LGUs may adopt its provisions for local government infrastructure projects. However, when the purpose is not a national infrastructure project and an LGU is involved, the Local Government Code applies, permitting immediate possession upon deposit of at least 15% of the fair market value based on the current tax declaration.

• Requisites for LGU Exercise of Eminent Domain — A local government unit may exercise the power of eminent domain provided that: (1) an ordinance is enacted authorizing the local chief executive to exercise the power; (2) the power is exercised for public use, purpose, or welfare; (3) there is payment of just compensation; and (4) a valid and definite offer has been previously made to the owner but was not accepted. The Court found the first requisite present but the fourth lacking due to the failure to renegotiate.
• Due Process in Expropriation Proceedings — Affirmative defenses in an expropriation case that necessitate the presentation of evidence aliunde must be addressed in a full-blown trial and hearing. Dismissing such defenses without trial constitutes a violation of procedural due process, which ousts the trial court of jurisdiction and renders its decision void.
• Harmonization of the Right-of-Way Act and the Local Government Code — The Right-of-Way Act applies to national government infrastructure projects or when LGUs adopt it for local infrastructure projects. For other LGU expropriations not considered national infrastructure projects, the Local Government Code governs the deposit required for immediate possession, which is at least 15% of the fair market value based on the current tax declaration.

• "The property owner who objects to the expropriation proceeding may file an answer, which shall specifically state their objections and defenses to the taking of their property. Affirmative defenses necessitating the presentation of evidence aliunde must be addressed in a full-blown trial and hearing, the absence of which constitutes a violation of the property owner's right to due process." — This passage from the opening of the decision encapsulates the core procedural ruling regarding the necessity of a full-blown trial for affirmative defenses in expropriation cases.
• "when the property owner rejects the offer but hints for a better price, the government should renegotiate by calling the property owner to a conference. The government must exhaust all reasonable efforts to obtain by agreement the land it desires." — This quotation, adopted from City of Manila vs. Alegar Corp., defines the standard for a valid and definite offer, requiring good-faith renegotiation efforts before resorting to expropriation.
• "where there is a violation of basic constitutional rights, the courts are ousted from their jurisdiction. The violation of a party's right to due process raises a serious jurisdictional issue which cannot be glossed over or disregarded at will." — This passage establishes the jurisdictional consequence of a due process violation, rendering the trial court's decision void.

• Municipality of Parañaque vs. V.M. Realty Corp., 354 Phil. 684 (1998) — Cited as the controlling precedent enumerating the essential requisites before a local government unit can exercise the power of eminent domain.
• Jesus is Lord Christian School Foundation Inc. vs. Municipality (now City) of Pasig, 503 Phil. 845 (2005) — Cited to explain the purpose of the requirement for a valid and definite offer to be first made to the owner.
• City of Manila vs. Alegar Corp., 689 Phil. 31 (2012) — Cited to elucidate that the government must exhaust all reasonable efforts to obtain the land by agreement, including renegotiating when the owner hints at a better price.
• Robern Development Corp. vs. Quitain, 373 Phil. 773 (1999) — Cited to support the proposition that affirmative defenses necessitating evidence aliunde must be ventilated in a full-blown trial and hearing.
• Alliance for the Family Foundation, Philippines, Inc. vs. Garin, 793 Phil. 831 (2016) — Cited for the distinction between substantive and procedural due process and for the doctrine that violation of due process ousts courts of jurisdiction.

• Section 19, Local Government Code of 1991 (R.A. No. 7160) — Prescribes the delegation of the power of eminent domain to LGUs, requiring an ordinance, public use, just compensation, a prior valid and definite offer, and a 15% deposit for immediate possession based on the current tax declaration.
• Article 35, Implementing Rules and Regulations of the Local Government Code — Provides the manner of effectuating the offer to buy, requiring a conference to reach an agreement if the owner is willing to sell at a higher price.
• Rule 67, Rules of Court — Governs the procedure for expropriation, allowing the property owner to file an answer stating objections and defenses to the taking of their property.
• Section 1, Article III, Constitution — Guarantees that no person shall be deprived of life, liberty, or property without due process of law.
• R.A. No. 10752 (The Right-of-Way Act) — Governs the acquisition of real property for national government infrastructure projects, requiring a 100% deposit of the BIR zonal valuation for immediate possession; clarified to apply to LGUs only when adopting its provisions for local infrastructure projects.

Lazaro-Javier, M. Lopez, J. Lopez, and Kho, Jr., JJ., concurred.