Republic vs. Soriano

Interest on just compensation is not warranted when the expropriating authority deposits the full amount of just compensation before the taking of the property, as there is no delay in payment. Consequential damages are likewise improper when the entire property is expropriated, leaving no remaining portion that suffers an impairment or decrease in value.

The Republic of the Philippines, through the Department of Public Works and Highways (DPWH), sought to expropriate a 200-square-meter parcel of land owned by respondent Arlene R. Soriano for the construction of the North Luzon Expressway (NLEX)-Harbor Link Project (Segment 9) from NLEX to MacArthur Highway, Valenzuela City. The expropriation was undertaken pursuant to Republic Act (RA) No. 8974, which facilitates the acquisition of right-of-way for national government infrastructure projects.

On October 20, 2010, the Republic of the Philippines, represented by the Department of Public Works and Highways (DPWH), filed a Complaint for expropriation against respondent Arlene R. Soriano, the registered owner of a 200-square-meter parcel of land in Gen. T De Leon, Valenzuela City, covered by Transfer Certificate of Title (TCT) No. V-13790. The property was to be used for the construction of the North Luzon Expressway (NLEX)-Harbor Link Project (Segment 9) from NLEX to MacArthur Highway, Valenzuela City, pursuant to Republic Act (RA) No. 8974.

Petitioner deposited ₱420,000.00 to the Acting Branch Clerk of Court, representing 100% of the zonal value of the subject property. On May 27, 2011, the RTC ordered the issuance of a Writ of Possession and a Writ of Expropriation after respondent failed to appear despite notice. The RTC subsequently appointed a Board of Commissioners to determine just compensation, but revoked the appointment for failure to submit a report and directed the parties to submit position papers.

Petitioner adduced evidence showing that the deposited amount was just, fair, and equitable. A Certification from the Bureau of Internal Revenue (BIR), Revenue Region No. 5, set the zonal value at ₱2,100.00 per square meter. Tax Declaration No. C-018-07994 showed a lower value of ₱400.00 per square meter. Testimony and photographs showed the property was poorly maintained, covered by shrubs and weeds, not concretely-paved, located far from commercial or industrial developments, without proper drainage, accessible only through a narrow dirt road, and surrounded by sub-standard dwellings. The RTC considered respondent to have waived her right to adduce evidence due to her continued absence.

On November 15, 2013, the RTC rendered its Decision fixing just compensation at ₱2,100.00 per square meter or ₱420,000.00 for the 200 square meters, with legal interest at 12% per annum from the taking of possession, and awarding consequential damages including the transfer tax. The RTC also directed the issuance of new manager's checks as the original ones had become stale. Petitioner filed a Motion for Reconsideration, and on March 10, 2014, the RTC reduced the interest rate to 6% per annum based on Article 2209 of the Civil Code, citing National Power Corporation vs. Angas.

• No Delay in Payment: Petitioner argued that since it deposited the amount representing the zonal value of the property before its taking, it cannot be said to be in delay, and thus, there can be no interest due on the payment of just compensation.
• No Consequential Damages: Petitioner alleged that since the entire subject property was expropriated and not merely a portion thereof, it did not suffer an impairment or decrease in value, rendering the award of consequential damages nugatory.
• Transfer Taxes: Petitioner claimed that transfer taxes, in the nature of Capital Gains Tax and Documentary Stamp Tax, necessary for the transfer of the subject property from respondent to petitioner, are liabilities of respondent and not petitioner.

N/A — The decision does not recount respondent's arguments.

• Interest on Just Compensation: Whether the respondent is entitled to legal interest on the amount of just compensation when the petitioner deposited the full amount before the taking of the property.
• Consequential Damages: Whether the award of consequential damages is proper when the entire property is expropriated.
• Transfer Taxes: Whether the capital gains tax and documentary stamp tax due on the transfer of the expropriated property should be shouldered by the respondent or the petitioner.

• Interest on Just Compensation: No. The imposition of interest on the payment of just compensation was deleted because the petitioner deposited the full amount of just compensation before the taking of the property, and there was no delay in payment.
• Consequential Damages: No. The award of consequential damages was deleted because the entire area of the subject property was expropriated, leaving no remaining portion that could suffer an impairment or decrease in value.
• Transfer Taxes: Partly meritorious. The respondent is ordered to pay the capital gains tax, while the documentary stamp tax, transfer tax, and registration fee shall be for the account of the petitioner.

• Interest on Just Compensation: The Court noted that the RTC's reliance on National Power Corporation vs. Angas was misplaced, as it had been overturned by Republic vs. Court of Appeals, which held that the payment of just compensation for expropriated property amounts to an effective forbearance on the part of the State. However, the Court found that the imposition of interest was unwarranted in this case because the petitioner deposited the full amount of just compensation before the taking. The award of interest is imposed in the nature of damages for delay in payment, and when there is no delay, the imposition of interest is unjustified and should be deleted. The records showed that petitioner deposited the amount on January 24, 2011, four months before the taking on May 27, 2011.

• Consequential Damages: The Court cited Republic vs. Bank of the Philippine Islands, which held that the general rule is that just compensation is the market value of the property, but this rule is modified where only a part of a certain property is expropriated, in which case the owner is entitled to consequential damages to the remaining part. Since the subject property was expropriated in its entirety, there was no remaining portion that could suffer an impairment or decrease in value, making the award of consequential damages improper.

• Transfer Taxes: With respect to the capital gains tax, the Court found merit in petitioner's position that pursuant to Sections 24(D) and 56(A)(3) of the 1997 National Internal Revenue Code (NIRC), capital gains tax due on the sale of real property is a liability for the account of the seller. The Court noted that BIR Ruling No. 476-2013 constituted the DPWH as a withholding agent for the six percent final withholding tax, but the capital gains tax remains a liability of the seller. As to the documentary stamp tax, the Court found petitioner's denial of liability inconsistent. Section 196 of the NIRC does not explicitly impute the obligation to pay the documentary stamp tax on the seller. Under BIR Revenue Regulations No. 9-2000, any of the parties to a transaction shall be liable for the full amount of the documentary stamp tax due, unless they agree among themselves. The Court noted that petitioner's own Citizen's Charter, issued on December 4, 2013, explicitly provides that the documentary stamp tax, transfer tax, and registration fee shall be shouldered by the implementing agency of the DPWH, while the capital gains tax shall be paid by the affected property owner.

• Forbearance Doctrine — The payment of just compensation for expropriated property amounts to an effective forbearance on the part of the State. The debt incurred by the government on account of the taking of the property constitutes a forbearance, and the applicable interest rate is determined by the prevailing rate for loans or forbearance of money. However, interest is imposed only when there is delay in payment; when the full amount of just compensation is deposited before the taking, no interest is warranted.

• Consequential Damages Rule — The general rule is that just compensation is the market value of the property. This rule is modified where only a part of a certain property is expropriated, in which case the owner is entitled to recover consequential damages to the remaining part. Consequential damages are awarded if, as a result of the expropriation, the remaining property of the owner suffers from an impairment or decrease in value. When the entire property is expropriated, there is no remaining portion that may suffer impairment, and consequential damages are improper.

• Ejusdem Generis — The term "judgments" as used in Section 1 of the Usury Law and Central Bank Circular No. 416 should be interpreted to mean only judgments involving loan or forbearance of money, goods, or credits. This principle was applied in National Power Corporation vs. Angas, but that case was overturned by Republic vs. Court of Appeals, which recognized that just compensation due to landowners for expropriated property amounts to an effective forbearance.

• "Effectively, therefore, the debt incurred by the government on account of the taking of the property subject of an expropriation constitutes a forbearance which runs contrary to the trial court's opinion that the same is in the nature of indemnity for damages calling for the application of Article 2209 of the Civil Code." — This passage establishes the controlling doctrine that just compensation for expropriated property constitutes a forbearance, not indemnity for damages, and thus the applicable interest rate is that for loans or forbearance of money.

• "However, when there is no delay in the payment of just compensation, We have not hesitated in deleting the imposition of interest thereon for the same is justified only in cases where delay has been sufficiently established." — This passage articulates the rule that interest on just compensation is warranted only when there is delay in payment, and is deleted when the full amount is deposited before the taking.

• "Considering that the subject property is being expropriated in its entirety, there is no remaining portion which may suffer an impairment or decrease in value as a result of the expropriation. Hence, the award of consequential damages is improper." — This passage states the rule that consequential damages are improper when the entire property is expropriated, as there is no remaining portion that could suffer impairment.

• Republic vs. Court of Appeals, 433 Phil. 106 (2002) — Controlling precedent that overturned National Power Corporation vs. Angas, holding that the payment of just compensation for expropriated property amounts to an effective forbearance on the part of the State, and fixing the applicable interest rate at 12% per annum.

• National Power Corporation vs. Angas — Overturned by Republic vs. Court of Appeals; previously held that just compensation is not a loan or forbearance but indemnity for damages, with Article 2209 of the Civil Code fixing legal interest at 6%.

• Republic vs. Bank of the Philippine Islands, G.R. No. 203039, September 11, 2013 — Cited for the rule that consequential damages are awarded only when a portion of the property is expropriated and the remaining portion suffers impairment or decrease in value.

• Land Bank of the Philippines vs. Wycoco, 464 Phil. 83 (2004) — Cited for the principle that interest is imposed in the nature of damages for delay in payment, making the obligation one of forbearance to ensure prompt payment.

• Land Bank of the Philippines vs. Escandor, 647 Phil. 20 (2010) — Cited for the rule that interest is justified only in cases where delay has been sufficiently established.

• Section 24(D), 1997 National Internal Revenue Code — Imposes a final tax of six percent (6%) on capital gains from the sale, exchange, or other disposition of real property classified as capital assets. Applied to hold that the capital gains tax is a liability of the seller, respondent herein.

• Section 56(A)(3), 1997 National Internal Revenue Code — Provides for the payment of capital gains tax on the date the return is filed by the person liable thereto. Applied to support the conclusion that the capital gains tax is the seller's liability.

• Section 196, 1997 National Internal Revenue Code — Imposes documentary stamp tax on deeds of sale and conveyances of real property. The Court found that this provision does not explicitly impute the obligation to pay the documentary stamp tax on the seller.

• Section 2, BIR Revenue Regulations No. 9-2000 — Provides that any of the parties to a transaction shall be liable for the full amount of the documentary stamp tax due, unless they agree among themselves. Applied to hold that the documentary stamp tax may be shouldered by either party, and in this case, the petitioner's Citizen's Charter assumed liability.

• Article 2209, Civil Code — Fixes legal interest at six percent (6%) per annum for obligations consisting in the payment of a sum of money where the debtor incurs in delay. The RTC relied on this provision, but the Supreme Court found it inapplicable because the just compensation constitutes a forbearance, not indemnity for damages.

• BSP Circular No. 799, Series of 2013 — Sets the prevailing rate of interest for loans or forbearance of money at six percent (6%) per annum, effective July 1, 2013. The Court noted this circular in determining the applicable interest rate for forbearance.

Presbitero J. Velasco, Jr., Martin S. Villarama, Jr., Bienvenido L. Reyes, and Marvic M.V.F. Leonen (separate concurring opinion).

N/A — No dissenting opinions are noted in the provided text.