Republic of the Philippines vs. Macabagdal

Legal interest on the unpaid balance of just compensation in expropriation proceedings shall be computed at twelve percent (12%) per annum from the date of actual taking until June 30, 2013, and at six percent (6%) per annum from July 1, 2013 until full payment, applying BSP-MB Circular No. 799, Series of 2013 to forbearances of money, with accrual commencing from the issuance of the writ of possession effecting deprivation of property.

The Department of Public Works and Highways (DPWH) initiated expropriation proceedings for a 200-square meter parcel of land in Barangay Ugong, Valenzuela City, registered in the name of Leonor Macabagdal, to accommodate the C-5 Northern Link Road Project (NLEX Segment 8.1). The government sought to construct a highway traversing from Mindanao Avenue in Quezon City to the NLEX in Valenzuela City, requiring acquisition of right-of-way through the subject property.

• Nature of Action: Eminent domain proceedings initiated by the Republic, represented by DPWH, for the construction of the C-5 Northern Link Road Project (NLEX Segment 8.1), a national infrastructure project traversing from Mindanao Avenue, Quezon City to NLEX, Valenzuela City.
• Subject Property: A 200-square meter lot located in Barangay Ugong, Valenzuela City, identified as Lot 1343-A-2-A-2-G, (LRC)Psd-315943, registered under Transfer Certificate Title No. V-103067 in the name of respondent Leonor Macabagdal.
• Procedural Taking: On May 5, 2008, the RTC issued a writ of possession in favor of petitioner, constituting the effective taking of the property. Petitioner deposited ₱550,000.00 (based on zonal value of ₱2,750.00/sq.m.) as provisional just compensation.
• Substitution of Party: On August 28, 2012, respondent was substituted as party-defendant upon sufficient showing of her ownership. She did not oppose the expropriation and received the provisional deposit.
• Valuation Proceedings: The RTC appointed commissioners who submitted a report on May 23, 2014 recommending ₱9,000.00/sq.m. as fair market value, considering location, neighborhood, land classification, utilities, amenities, physical characteristics, occupancy, usage, highest and best use, current market value offerings, and prior expropriation decisions involving similarly situated properties in the same barangay.
• Lower Court Determination: The RTC adopted the commissioners' recommendation, fixing just compensation at ₱9,000.00/sq.m. (totaling ₱1,800,000.00) and directing payment of the balance after deducting the provisional deposit, with 12% interest from the time of taking until full payment.

• Applicable Interest Rate: Petitioner argued that the applicable rate of legal interest should be twelve percent (12%) per annum only from the filing of the complaint until June 30, 2013, and six percent (6%) per annum thereafter until full payment, pursuant to BSP-MB Circular No. 799, Series of 2013.
• Graduated Rate Application: Petitioner maintained that the Court of Appeals failed to rule on the issue of the applicable rate, and that the 12% rate could not apply indefinitely but must yield to the 6% rate prescribed by the BSP Circular for periods after June 30, 2013.

• Continued Application of 12% Rate: Respondent countered that the twelve percent (12%) interest rate should apply throughout until full payment, citing Sy v. Local Government of Quezon City and Land Bank of the Philippines v. Wycoco as authority for the proposition that the higher rate governs in expropriation cases until complete satisfaction of the obligation.

• Applicable Legal Interest Rate: Whether the Court of Appeals committed reversible error in affirming the imposition of twelve percent (12%) legal interest on the unpaid balance of just compensation computed from the time of taking until full payment, without applying the reduction to six percent (6%) mandated by BSP-MB Circular No. 799, Series of 2013 for periods after June 30, 2013.
• Accrual of Interest: Whether legal interest accrues from the date of filing of the complaint or from the date of actual taking (issuance of writ of possession).

• Applicable Legal Interest Rate: The award of legal interest was modified to reflect the graduated rate established by BSP-MB Circular No. 799. The delay in payment of just compensation constitutes a forbearance of money, entitling the landowner to interest on the difference between the final adjudged amount and the initial payment. However, the twelve percent (12%) rate applies only from the date of taking until June 30, 2013; thereafter, the rate is six percent (6%) per annum until full payment. The cases cited by respondent (Sy and Wycoco) were decided prior to the July 1, 2013 effectivity of Circular No. 799 and thus do not control.
• Accrual of Interest: Legal interest runs from the date of issuance of the Writ of Possession on May 5, 2008, not from the filing of the complaint on January 23, 2008. Actual deprivation of property commenced upon the issuance of the writ authorizing petitioner to take possession, establishing the point when the owner's loss became effective and when the obligation to pay full compensation crystallized into a forbearance.

• Forbearance of Money in Expropriation: The delay in payment of just compensation amounts to an effective forbearance of money, entitling the landowner to interest on the unpaid balance (the difference between the final adjudged just compensation and the initial provisional payment made by the government).
• Components of Just Compensation: Full and ample compliance with the constitutional mandate of just compensation requires payment of: (1) the principal sum representing the market value of the property at the time of taking; and (2) legal interest on any unpaid balance to compensate for the income-generating potential lost during the delay in payment.
• Accrual of Interest: Interest on unpaid just compensation accrues from the date of actual taking—marked by the issuance of the writ of possession—not from the filing of the expropriation complaint, as the deprivation of property and the corresponding obligation to pay only become definite upon the former event.
• Application of BSP-MB Circular No. 799: The reduction of the legal interest rate from twelve percent (12%) to six percent (6%) per annum under BSP-MB Circular No. 799, Series of 2013 (effective July 1, 2013) applies to forbearances of money, including unpaid just compensation in expropriation cases. The rate is 12% from the date of taking until June 30, 2013, and 6% from July 1, 2013 until full payment.

• "The purpose of just compensation is not to reward the owner for the property taken, but to compensate him for the loss thereof. As such, the true measure of the property, as upheld in a plethora of cases, is the market value at the time of the taking, when the loss resulted."
• "The value of the landholdings should be equivalent to the principal sum of the just compensation due, and interest is due and should be paid to compensate for the unpaid balance of this principal sum after taking has been completed. This shall comprise the real, substantial, full, and ample value of the expropriated property, and constitutes due compliance with the constitutional mandate of just compensation in eminent domain."
• "It is settled that the delay in the payment of just compensation amounts to an effective forbearance of money, entitling the landowner to interest on the difference in the amount between the final amount as adjudged by the court and the initial payment made by the government."
• "Nonetheless, it bears to clarify that legal interest shall run not from the date of the filing of the complaint but from the date of the issuance of the Writ of Possession on May 5, 2008, since it is from this date that the fact of the deprivation of property can be established."

• Secretary of the Department of Public Works and Highways v. Spouses Tecson, 758 Phil. 604 (2015) — Controlling precedent establishing that just compensation is measured by market value at the time of taking and that interest compensates for the unpaid balance; cited for the principle that the State is not obliged to pay premium but only to make good the loss sustained.
• Apo Fruits Corp. v. Land Bank of the Philippines, 647 Phil. 251 (2010) — Cited for the doctrine that interest is due to compensate for the unpaid balance of the principal sum after taking.
• Evergreen Manufacturing Corp. v. Republic, G.R. Nos. 218628 and 218631, September 6, 2017 — Recent jurisprudence upholding the applicability of BSP-MB Circular No. 799 to forbearances of money in expropriation cases.
• Republic v. Cebuan, G.R. No. 206702, June 7, 2017 — Cited alongside Evergreen for the applicability of the reduced 6% interest rate post-June 30, 2013.
• National Power Corporation v. Heirs of Ramoran, G.R. No. 193455, June 13, 2016 — Cited for the rule that interest accrues from the date of taking (issuance of writ of possession) and for the applicability of BSP-MB Circular No. 799.
• Republic v. Mupas, 769 Phil. 21 (2015) — Cited for the principle that the issuance of the writ of possession constitutes the taking of the property.
• Sy v. Local Government of Quezon City, 710 Phil. 549 (2013) — Distinguished as having been decided prior to the effectivity of BSP-MB Circular No. 799; respondent's reliance thereon rejected.
• Land Bank of the Philippines v. Wycoco, 464 Phil. 83 (2004) — Distinguished as predating Circular No. 799; inapplicable to the period after June 30, 2013.

• Section 5, Republic Act No. 8974 — "An Act to Facilitate the Acquisition of Right-of-Way, Site or Location for National Government Infrastructure Projects" — Cited as the statutory basis for the parameters observed by the commissioners in determining just compensation.
• BSP-MB Circular No. 799, Series of 2013 — "Subject: Rate of interest in the absence of stipulation" — Applied to reduce the legal interest rate from 12% to 6% per annum effective July 1, 2013 for forbearances of money, including unpaid just compensation in expropriation.

Antonio T. Carpio (Chairperson), Diosdado M. Peralta, Alfredo Benjamin S. Caguioa (On Leave), and Andres B. Reyes, Jr.