Philippine Supreme Court Jurisprudence

Before the Court is a petition for review on certiorari¹ assailing the Decision² dated July 1, 2016 and the Resolution³ dated January 23, 2017 of the Court of Appeals (CA) in CA-G.R. CV No. 102033, which affirmed the Decision⁴ dated November 26, 2013 and the Order⁵ dated January 16, 2014 of the Regional Trial Court of Valenzuela City, Branch 270 (RTC) in Civil Case No. 38-V-13, fixing the just compensation for the subject lots at P15,000.00/square meter (sq. m.) and the replacement cost of the improvements thereon at P12,000.00/sq.m., but deleting the award of consequential damages and reducing the legal rate of interest on the obligation from twelve percent (12%) to six percent (6%) per annum (p.a.).

The Facts

On February 12, 2013, petitioner the Republic of the Philippines, represented by the Department of Public Works and Highways (DPWH; petitioner), filed before the RTC a complaint⁶ against respondent Belly H. Ng (respondent), represented by Annabelle G. Wong⁷, seeking to expropriate the lots registered in the name of respondent under Transfer Certificate of Title (TCT) Nos. V-92188⁸ and V-92191⁹ with a total area of 1,671 sq. m. (subject lots), together with the improvements thereon with an aggregate surface area of 2,121.7 sq. m. (collectively, subject properties), located in Kowloon Industrial Compound, Tatalon Street, Brgy. Ugong, Valenzuela City,¹⁰ for the construction of the Mindanao Avenue Extension Project, Stage II-C (Valenzuela City to Caloocan City).¹¹ Petitioner manifested that it is able and ready to pay respondent the amounts of P6,684,000.00 (i.e., at P4,000.00/sq. m.) and P11,138,362.74,¹² representing the combined relevant zonal value of the subject lots and the replacement cost of the improvements thereon, respectively.¹³

In her answer,¹⁴ respondent contended that the offer price is unreasonably low, and that she should be compensated the fair market value of her properties at the time of taking, estimated to be at P25,000.00/sq. m. Moreover, the fair and just replacement cost of the improvements on the subject lots should be in the amount of P22,276,724.00,¹⁵ pursuant to Section 10 of the Implementing Rules and Regulations of Republic Act No. (RA) 8974.¹⁶

Petitioner was eventually granted a Writ of Possession,¹⁷ after respondent received the amount of P17,822,362.74, representing 100% of the zonal value of the subject properties.¹⁸

The RTC appointed a board of commissioners to determine the just compensation for the properties¹⁹ which, thereafter, submitted its Commissioner's Report²⁰ dated June 10, 2013, recommending the amounts of P7,000.00/sq. m. and P12,000.00/sq. m. as the just compensation for the subject lots and the improvements thereon, respectively, and the payment of six percent (6%) legal interest therefor, reckoned from the time of taking.²¹

Dissatisfied, respondent objected²² to the recommended just compensation of P7,000.00/sq. m. for the subject lots, contending that the same "is not [the] real, substantial, full, ample[,] and fair market value" of her lots,²³ considering that the just compensation for nearby properties²⁴ expropriated for the C-5 Northern Link Project²⁵ had been fixed by the same RTC at P15,000.00/sq. m.²⁶ She likewise objected to the imposition of six percent (6%) interest, insisting that the same should be pegged at twelve percent (12%) interest p.a.,²⁷ in line with the rulings in Land Bank of the Philippines (LBP) v. Imperial²⁸ and in Republic of the Philippines (Republic) v. Ker & Company, Limited.²⁹ However, she accepted the value of P12,000.00/sq. m. fixed as the replacement cost of the improvements.³⁰

On the other hand, petitioner filed its comment,³¹ interposing no objection to the P7,000.00/sq. m. valuation for the subject lots and the imposition of six percent (6%) legal interest recommended by the board of commissioners,³² citing the letter³³ dated July 30, 2013 of the Office of Director Patrick B. Gatan, Project Director, Infrastructure Right-of-Way and Resettlement - Project Management Office, DPWH.³⁴ However, it failed to attach a copy of the said letter.

The RTC Ruling

In a Decision³⁵ dated November 26, 2013, the RTC fixed the just compensation for the subject lots at P15,000.00/sq. m. or the total amount of P25,065,000.00, taking into account: (a) the classification of the subject lots as industrial, their location, shape, and their being not prone to flood;³⁶ and (b) a previous case³⁷ involving a neighboring property expropriated for the C-5 Northern Link Project which was valued at P15,000.00/sq. m. by the same RTC.³⁸ It adopted the replacement cost of P12,000.00/sq. m. recommended by its appointed commissioners or the total amount of P25,460,400.00, noting that respondent accepted said recommendation.³⁹ Consequently, it ordered petitioner to pay respondent the aforesaid amounts with twelve percent (12%) legal interest p.a., reckoned from the time of taking of the properties, less the provisional deposit of P17,822,362.74, plus consequential damages and attorney's fees.⁴⁰

Dissatisfied, petitioner moved for reconsideration,⁴¹ but was denied in an Order⁴² dated January 16, 2014, prompting it to file an appeal⁴³ before the CA.

The CA Ruling

In a Decision⁴⁴ dated July 1, 2016, the CA affirmed the RTC rulings, but deleted the award of consequential damages and reduced the legal interest to six percent (6%) p.a., computed from the date of the RTC Decision until full satisfaction.⁴⁵

The CA upheld the just compensation of P15,000.00/sq. m. fixed by the RTC for the subject 1,671-sq. m. lots on the basis of relevant factors, such as the BIR zonal valuation of the land, tax declarations and the Commissioner's Report, as well as the market value of the properties within the area.⁴⁶ It likewise sustained the value of P12,000.00/sq. m. fixed as the replacement cost of the improvements with an aggregate surface area of 2,121.7 sq. m. or the total amount of P25,460,400.00, holding that: (a) the amount of P11,138,362.74 proposed by petitioner was inconceivably lower than the current construction cost of a commercial/warehouse which was at P32,000.00/sq. m., even as early as November 2009; and (b) petitioner did not interpose any objection to the said amount.⁴⁷

However, the CA ruled that the award of consequential damages was improper, considering that the entirety of the subject properties is being expropriated, hence, there is no remaining portion that may suffer an impairment or decrease in value.⁴⁸ It likewise reduced the legal interest to six percent (6%) p.a., in line with the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799,⁴⁹ Series of 2013.⁵⁰

Petitioner filed a Motion for Partial Reconsideration,⁵¹ which was, however, denied in a Resolution⁵² dated January 23, 2017; hence, the instant petition.

The Issue Before the Court

The essential issue for the Court's resolution is whether or not the CA committed reversible error in affirming the replacement cost for the improvements fixed by the RTC, and the award of attorney's fees.

The Court's Ruling

The petition is partly meritorious.

The construction of the Mindanao Avenue Extension Project, Stage II-C (Valenzuela City to Caloocan City) involves the implementation of a national infrastructure project. Thus, for purposes of determining the just compensation, RA 8974⁵³ and its implementing rules and regulations (IRR), which were effective at the time of the filing of the complaint, shall govern.⁵⁴

Under Section 10 of the IRR, the improvements and/or structures on the land to be acquired shall be appraised using the replacement cost method, thus:

Section 10. Valuation of Improvements and/or Structures. � Pursuant to Section 7 of [RA 8974], the Implementing Agency shall determine the valuation of the improvements and/or structures on the land to be acquired using the replacement cost method. The replacement cost of the improvements/structures is defined as the amount necessary to replace the improvements/structures, based on the current market prices for materials, equipment, labor, contractor's profit and overhead, and all other attendant costs associated with the acquisition and installation in place of the affected improvements/structures. In the valuation of the affected improvements/structures, the Implementing Agency shall consider, among other things, the kinds and quantities of materials/equipment used, the location, configuration and other physical features of the properties, and prevailing construction prices. (Emphasis supplied)

The replacement cost method is premised on the principle of substitution, which means that "all things being equal, a rational, informed purchaser would pay no more for a property than the cost of building an acceptable substitute with like utility."⁵⁵

Accordingly, the Implementing Agency should consider: (a) construction costs or the current market price of materials, equipment, labor, as well as the contractor's profit and overhead; and (b) attendant costs or the cost associated with the acquisition and installation of an acceptable substitute in place of the affected improvements/structures.⁵⁶ In addition, the case of Republic v. Mupas (Mupas)⁵⁷ instructs that in using the replacement cost method to ascertain the value of improvements, the courts may also consider the relevant standards provided under Section 5⁵⁸ of RA 8974, as well as equity consistent with the principle that eminent domain is a concept of equity and fairness that attempts to make the landowner whole. Thus, it is not the amount of the owner's investment, but the "value of the interest" in land taken by eminent domain, that is guaranteed to the owner.⁵⁹

While there are various methods of appraising a property using the cost approach, among them, the reproduction cost, the replacement cost new, and the depreciated replacement cost, Mupas declared that the use of the depreciated replacement cost method⁶⁰ is consistent with the principle that the property owner shall be compensated for his actual loss,⁶¹ bearing in mind that the concept of just compensation does not imply fairness to the property owner alone, but must likewise be just to the public which ultimately bears the cost of expropriation. The property owner is entitled to compensation only for what he actually loses, and what he loses is only the actual value of the property at the time of the taking.⁶² Hence, even as undervaluation would deprive the owner of his property without due process, so too would its overvaluation unduly favor him to the prejudice of the public.⁶³

It must be emphasized that in determining just compensation, the courts must consider and apply the parameters set by the law and its implementing rules and regulations in order to ensure that they do not arbitrarily fix an amount as just compensation that is contradictory to the objectives of the law.⁶⁴ Be that as it may, when acting within the parameters set by the law itself, courts are not strictly bound to apply the formula to its minutest detail, particularly when faced with situations that do not warrant the formula's strict application. Thus, the courts may, in the exercise of their discretion, relax the formula's application,⁶⁵ subject to the jurisprudential limitation that the factual situation calls for it and the courts clearly explain the reason for such deviation.⁶⁶

In this case, the RTC and the CA upheld the recommendation of the court-appointed commissioners, fixing the just compensation for the improvements on the expropriated properties at P12,000.00/sq. m., which merely considered their location, classification, value declared by the owner, and the zonal valuation of the subject lots. However, there is no competent evidence showing that it took into account the prevailing construction costs and all other attendant costs associated with the acquisition and installation of an acceptable substitute in place of the affected improvements/structures as required by the IRR. Consequently, the Court cannot uphold and must, perforce, set aside the said valuation as the just compensation for the subject improvements.

On the other hand, it is unclear how the parameters set by the IRR have been factored-in in petitioner's proposed valuation of P11,138,362.74.⁶⁷ Thus, the Court cannot automatically adopt petitioner's own computation as prayed for in the instant petition. Neither can the Court accept respondent's submitted valuation⁶⁸ which claimed to have used the prevailing replacement cost method for lack of proper substantiation to support the correctness of the values or data used in such computation.

It must be emphasized that the veracity of the facts and figures which the parties used in their respective computations involves the resolution of questions of fact which is, as a rule, improper in a petition for review on certiorari since the Court is not a trier of facts. Thus, a remand of this case for reception of further evidence is necessary in order for the RTC to determine just compensation for the subject improvements in accordance with the guidelines set under RA 8974 and its IRR.

In relation thereto, the Court deems it proper to correct the award of legal interest to be imposed on the unpaid balance of the just compensation, which shall be computed at the rate of twelve percent (12%) p.a. from the date of taking, i.e., from April 10, 2013 when the RTC issued a writ of possession⁶⁹ in favor of petitioner,⁷⁰ until June 30, 2013. Thereafter, or beginning July 1, 2013, until fully paid, the just compensation due respondent shall earn interest at the rate of six percent (6%) p.a.,⁷¹ in line with the amendment introduced by BSP-MB Circular No. 799, Series of 2013.

Finally, the Court finds the award of attorney's fees to be improper and should be, accordingly, deleted. Even when a claimant is compelled to incur expenses to protect his rights, attorney's fees may still be withheld where no sufficient showing of bad faith could be reflected in a party's persistence in a suit other than an erroneous conviction of the righteousness of his cause.⁷² The case of Republic v. CA (Republic)⁷³ cited by the CA to justify the award is inapplicable because, unlike in this case where petitioner only acquired possession of the expropriated properties after paying respondent the amount of P17,822,362.74, representing the 100% zonal valuation thereof, the petitioner in Republic took possession of the landowner's real property without initiating expropriation proceedings, and over the latter's objection.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated July 1, 2016 and the Resolution dated January 23, 2017 of the Court of Appeals in CA-G.R. CV No. 102033 are hereby AFFIRMED insofar as it upheld the just compensation fixed by the Regional Trial Court of Valenzuela City, Branch 270 (RTC) for the subject 1,671-square meter (sq. m.) lots at P15,000.00/sq. m. However, the valuation of P12,000.00/ sq. m. fixed by the lower courts as the replacement cost of the subject improvements with an aggregate surface area of 2,121.7 sq. m. is hereby SET ASIDE, and Civil Case No. 38-V-13 is REMANDED to the RTC for reception of evidence on the issue of just compensation therefor in accordance with the guidelines set under Republic Act No. 8974 and its implementing rules and regulations. Legal interest is hereby imposed on the unpaid balance of the just compensation, as determined by the RTC, at twelve percent (12%) per annum (p.a.) reckoned from April 10, 2013 to June 30, 2013 and, thereafter, at six percent (6%) p.a. until full payment. Finally, the award of attorney's fees is DELETED for lack of factual and legal bases.

The RTC is directed to conduct the proceedings in said case with reasonable dispatch, and to submit to the Court a report on its findings and recommended conclusions within sixty (60) days from notice of this Decision.

SO ORDERED.

Carpio (Chairperson), Peralta, Caguioa, and Reyes, Jr., JJ., concur.

Endnotes:

¹Rollo, pp. 28-55.

² Id. at 60-70. Penned by Associate Justice Noel G. Tijam (now a member of the Supreme Court) with Associate Justices Francisco P. Acosta and Eduardo B. Peralta, Jr. concurring.

³ Id. at 71-72.

⁴ Id. at 160-168. Penned by Presiding Judge Evangeline M. Francisco.

⁵ Id. at 209.

⁶ See Complaint with Urgent Prayer for the Issuance of a Writ of Possession dated February 4, 2013; id. at 88-99.

⁷ See Special Power of Attorney dated November 9, 2012; id. at 101-102.

⁸ With an area of 1,379 sq. m. See TCT No. V-92188; records, p. 16, including dorsal portion.

⁹ With an area of 292 sq. m. See TCT No. V-92191; id. 17, including dorsal portion.

¹⁰ See rollo, pp. 162 and 167.

¹¹ See id. at 31-32, 61, 90, and 160.

¹² See Replacement Cost Summary; records, pp. 23-26.

¹³Rollo, pp. 91-92.

¹⁴ See Answer with Affirmative Defenses dated February 26, 2013; id. at 133-139.

¹⁵ See id. at 135. See also id. at 61.

¹⁶ Entitled "IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT NO. 8974 (AN ACT TO FACILITATE THE ACQUISITION OF RIGHT-OF-WAY, SITE OR LOCATION FOR NATIONAL GOVERNMENT INFRASTRUCTURE PROJECTS AND FOR OTHER PURPOSES)," approved on February 12, 2001.

¹⁷ Issued on April 10, 2013. Records, pp. 59-60.

¹⁸ See Acknowledgment Receipts both dated March 8, 2013; id. at 41-42. See also rollo, p. 62.

¹⁹ See Order dated March 8, 2013; records, p. 53-54. See also rollo, p. 62.

²⁰Rollo, pp. 142-143.

²¹ Id. at 143.

²² See Defendant's Comments/Objection (To Commissioner's Report dated June 10, 2013) dated June 25, 2013; id. at 152-159.

²³ Id. at 154.

²⁴ In the case of Republic v. Hobart Realty and Development Corporation, which involved a residential property with a lower zonal value compared to respondent's industrial lots, the just compensation of P15,000.00/sq. m. was upheld by the Court via a Minute Resolution dated July 9, 2012 in G.R. No. 201136, which attained finality on January 7, 2013 (see Entry of Judgment issued by Deputy Clerk of Court and Chief, Judicial Records Office Corazon D. Delos Reyes; records p. 80). In the RTC Decision dated March 16, 2010 (penned by Judge Nancy Rivas-Palmones) issued in the same case, the defendant therein mentioned several expropriation cases filed and decided by the RTC, awarding P15,000.00/sq. m. as just compensation (id. at 83; see also id. at 126-132, including dorsal portions), which were made as references by herein respondent (see rollo, pp. 154-156).

²⁵I.e., the C-5 Northern Link Road Project (Segment 8.1) from Mindanao Avenue in Quezon City to the North Luzon Expressway, Valenzuela City. See records, p. 81.

²⁶ Id. at 86.

²⁷Rollo, pp. 157-158.

²⁸ 544 Phil. 378 (2007).

²⁹ 433 Phil. 70 (2002).

³⁰Rollo, p. 157.

³¹ See Comment (Re: Board of Commissioners' Report dated June 10, 2013) dated July 31, 2013; records, pp. 162-164.

³² Id. at 162.

³³Rollo, p. 151.

³⁴ Id. at 99.

³⁵ Id. at 160-168. Penned by Presiding Judge Evangeline M. Francisco.

³⁶ Id. at 167.

³⁷ Referring to Republic v. Hobart, supra note 24.

³⁸Rollo, p. 166.

³⁹ Id. at 167.

⁴⁰ Id. at 167-168.

⁴¹ See motion for reconsideration dated December 23, 2013; id. at 169-180.

⁴² Id. at 209.

⁴³ See Notice of Appeal dated January 23, 2014; id. at 210.

⁴⁴ Id. at 60-70.

⁴⁵ Id. at 70.

⁴⁶ See id. at 65-67.

⁴⁷ Id. at 67.

⁴⁸ Id. at 68.

⁴⁹ Entitled "Subject: Rate of interest in the absence of stipulation" (July 1, 2013).

⁵⁰ See Nacar v. Gallery Frames, 716 Phil. 267, 281-283 (2013).

⁵¹ Dated July 26, 2016; rollo, pp. 76-87.

⁵² Id. at 71-72.

⁵³ The complaint was filed pursuant to RA 8974 (see id. at 88-89). Section 4 of RA 8974 pertinently provides:

Section 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire real property for the right-of-way or location for any national government infrastructure project through expropriation, the appropriate implementing agency shall initiate the expropriation proceedings before the proper court x x x

xxx x (Emphasis supplied)

⁵⁴ See Republic v. Mupas, 769 Phil. 21, 125 (2015).

⁵⁵ Id. at 128-129.

⁵⁶ Id. at 134-135.

⁵⁷ Id. at 126-128.

⁵⁸ Section 5. Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale. - In order to facilitate the determination of just compensation, the court may consider, among other well-established factors, the following relevant standards:

(a)	The classification and use for which the property is suited;
(b)	The developmental costs for improving the land;
(c)	The value declared by the owners;
(d)	The current selling price of similar lands in the vicinity;
(e)	The reasonable disturbance compensation for the removal and/or demolition of certain improvements on the land and for the value of improvements thereon;
(f)	The size, shape or location, tax declaration and zonal valuation of the land;
(g)	The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and
(h)	Such facts and events as to enable the affected property owners to have sufficient funds to acquire similarly situated lands of approximate areas as those required from them by the government, and thereby rehabilitate themselves as early as possible.

⁵⁹Republic v. Mupas, supra note 54, at 128.

60	Cost of constructing the building (s) (including fees)	xxxx
�	Plus: Cost of the land (including fees)	xxxx
�	Total Costs	xxxx
�	Less: Allowance for age and depreciation	(xxxx)
�	= Depreciated Replacement Cost	xxxx
�	�	====

Id. at 132-134, citing Plimmer, Frances & Sayce, Sarah. DEPRECIATED REPLACEMENT COST � CONSISTENT METHODOLOGY, page 5, (visited November 3, 2017). See International Association of Assessing Officers. STANDARDS ON MASS APPRAISAL OF REAL PROPERTY, page 17, < http://katastar.rgz.gov.rs/masovnaprocena/Files/2.Standard_of_Mass_Appraisal_of_Real_Property_2013.pdf > (visited November 3, 2017).

The International Valuation Standards further explains the computation:

5.5	In applying DRC methodology, the Valuer shall:
	5.5.1.1	Assess the land at its Market Value for Existing Use
	5.5.1.2	Assess the current gross replacement cost of improvements less allowances to reflect:
		� Physical deterioration � Functional, or technical, obsolescence � Economic, or external, obsolescence
	5.5.1.3	Assess physical deterioration in the improvements, resulting from wear and tear over time and the lack of necessary maintenance. Different valuation methods may be used for estimating the amount required to rectify the physical condition of the improvements.
		5.5.1.3.1	Some methods rely on estimates of specific elements of depreciation and contractors' charges;
		5.5.1.3.2	Other methods rely on direct unit value comparisons between properties in similar condition.
	5.5.1.4	Assess functional/technical obsolescence caused by advances in technology that create new assets capable of more efficient delivery of goods and services.
		5.5.1.4.1	Modern production methods may render previously existing assets fully or partially obsolete in terms of current cost equivalency.
		5.5.1.4.2	Functional/technical obsolescence is usually allowed for by adopting the costs of a modern equivalent asset.
	5.5.1.5	Assess economic/external obsolescence resulting from external influences that affect the value of the subject property.
		5.5.1.5.1	External factors may include changes in the economy, which affect the demand for goods and services, and, consequently, the profitability of business entities.
	5.5.1.6	Estimate all relevant forms of remediable deterioration and obsolescence, including the costs of optimization required to rectify the property so as to optimize its productivity.
	5.5.1.7	Calculate the sum of the Market Value for Existing Use of the land and the Depreciated Replacement cost of the improvements (current gross replacement cost of the improvements less allowances for physical deterioration and all relevant forms of obsolescence) as the DRC estimate.
	5.5.1.8	In the case of plant and machinery, the DRC method of calculation is the same but excludes the land element. (Emphases in the original)
�	�
INTERNATIONAL VALUATION GUIDANCE NOTE 8. International Valuation Standards, Sixth Edition, pp. 313-314, < http://www.romacor.ro/legislatie/22-gn8.pdf > (visited November 3, 2017).

⁶¹ Id. at 128, 138.

⁶² Id. at 139.

⁶³Republic v. Mupas (Resolution), G.R. Nos. 181892, 209917, 209696, and 209731, April 19, 2016, 790 SCRA 217, 248.

⁶⁴ See Alfonso v. LBP, G.R. Nos. 181912 & 183347, November 29, 2016.

⁶⁵Republic v. Mupas, supra note 54, at 140.

⁶⁶ In LBP v. Omengan (See G.R. No. 196412, July 19, 2017), the Court had the occasion to declare that there is no cause to treat differently the manner and the method by which just compensation is determined only because it is to be paid in implementation of the agrarian reform law.

⁶⁷ Records, pp. 23-26.

⁶⁸ Id. at 95-100.

⁶⁹ Id. at 59-60.

⁷⁰ See Republic v. Mupas, supra note 54, at 199-200, 223.

⁷¹ See Nacar v. Gallery Frames, supra note 50.

⁷² See National Power Corporation v. Spouses Malijan, G.R. Nos. 211731 & 211818, December 7, 2016.

⁷³ 612 Phil. 965 (2009).