Philippine Supreme Court Jurisprudence > Year 2019 > December 2019 Decisions > G.R. No. 205473 - REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, PETITIONER, v. SPOUSES MARCELINO BUNSAY AND NENITA BUNSAY, RESPONDENTS.:

This is a petition for review on certiorari¹� (Petition)� filed under Rule 45 of the Rules� of Court� against� the Order/Resolution²��� dated� August� 23, 2012� (assailed� Resolution)� and� Order³�� dated� January� 10,� 2013� (assailed Order) of the Regional Trial Court ofValenzuela City, Branch 270 (RTC) in Civil Case No. 188-V-11.

The assailed Resolution� and Order: (i) directed the expropriation of a 100-square meter lot in Valenzuela� City covered� by Transfer Certificate� of Title� (TCT)� No.� V-16548�� (Disputed�� Property)�� issued� in� the� name� of respondents� Spouses Marcelino� and Nenita Bunsay (Spouses Bunsay);� and (ii) ordered petitioner Republic of the Philippines (Republic), through the Department� of� Public� Works� and� Highways� (DPWH),� to� pay� Spouses Bunsay consequential� damages equivalent to the value of the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in its name.

The facts are undisputed.

DPWH is the Republic's� engineering� and construction� arm tasked to undertake� the� "planning,� design,� construction� and� maintenance� of infrastructure�� facilities,� especially�� national� highways,� flood� control� and water resource� development� system, and other public works in accordance with national development objectives."⁴

Among� DPWH's�� projects� is� the� C-5� Northern� Link� Road� Project Phase 2 (Segment 9) connecting the North Luzon Expressway (NLEX) to McArthur Highway, Valenzuela City (the Project).⁵

In connection� with� the� implementation� of the Project,� DPWH� filed with� the RTC� a� Complaint� for Expropriation� with� Urgent� Prayer� for the Issuance of a Writ ofPossession⁶ (Expropriation Complaint) against Spouses Bunsay, concerning the Disputed Property.⁷

Records� show that while notices were sent to Spouses Bunsay, they were� returned� with� the� notation� "party�� moved".� As� expected,� Spouses Bunsay did not file an Answer.⁸

The RTC later scheduled a hearing on the issuance of the writ of possession� prayed for. During the hearing, DPWH deposited� checks in the total� amount� of� Two� Hundred� Thousand� Pesos� (Php200,000.00), representing��� the�� sum�� of�� the�� Disputed�� Property's� zonal�� value�� and replacement� cost of the improvements� built thereon.⁹� Thereafter,� the RTC issued a Writ of Possession� in favor of DPWH in its Order dated February 20, 2012. ¹⁰

Later still, the RTC directed the parties to submit their respective nominees to the Board of Commissioners for determination of just compensation. However, during the subsequent hearing held on August 23, 2012, DPWH manifested in open court that while all notices sent to Spouses Bunsay were returned unserved, they already claimed the checks that DPWH deposited with the RTC. Thus, DPWH moved that the amount received by Spouses�� Bunsay�� be�� deemed�� as�� just�� compensation�� for�� the�� Disputed Property.¹¹

The �� �RTC �� �granted �� �DPWH's �� �oral �� �motion �� �through �� �the �� �assailed .��� Resolution, the dispositive portion of which reads:

WHEREFORE, foregoing� considered,� judgment�� is� hereby rendered� in favor� of [DPWH]� condemning� the [Disputed� Property], free from all liens and encumbrances for the purpose of implementing the construction� [of� the Project]� from NLEX� to McArthur� Highway, Valenzuela City, and vesting unto [DPWH] the title to the property so described for such public use or purpose.

[DPWH)� is directed to issue [a] manager's check� in the amount of Five Hundred Five Thousand Three Hundred Seventy-Four Pesos and�� Seventy-One� Centavos� (Php�� 505,374.71),� representing�� the� total valuation of the improvements� located on the [Disputed� Property],� in the name of [Spouses Bunsay] and to deposit the same [with] the Office of the Clerk of Court, Regional Trial Court, Valenzuela City within fifteen (15) days from receipt of this Resolution.

As consequential damages, [DPWH] is further directed to pay the� value� of the� [CGT] and� other� taxes� necessary for� the� transfer of the [Disputed Property] in [DPWH's) name.

[Spouses Bunsay are] hereby directed to tum-over the owner's duplicate certificate of title to [DPWH].

After [the] parties have complied x x x, the Register of Deeds of Valenzuela� City� is� directed� to� effect� the� transfer� of� ownership� of� the [Disputed Property] to [DPWH] and to issue the conesponding certificate of title X X X.

SO ORDERED.¹² (Emphasis supplied)

The RTC's� award of just compensation represented the sum of the replacement� cost� of� the� following� improvements�� built� on� the� Disputed Property, as alleged by DPWH in the Expropriation Complaint:

[1. A] one-storey residential house (semi-concrete)� with x x x [f]ence and [s]teel�� [g]ate,� the� replacement�� cost� of� which� is� valued� at� Three Hundred Thirty Thousand Six Hundred Four Pesos and Thirty-Five Centavos (Php 330,604.35); and

[2. A] one[-]storey� residential� house (concrete)� with upper concrete slab, the replacement cost of which is valued at One Hundred Seventy-Four Thousand�� Seven� Hundred� Seventy� Pesos� and� Thirty-Six� Centavos (Php 174,770.36).¹³

DPWH filed a Motion for Partial Reconsideration (MPR), praying that the award corresponding to the replacement cost of improvements, and equivalent value of CGT and other transfer taxes be deleted.¹⁴

After due proceedings, the RTC issued the assailed Order granting DPWH's��� MPR�� in�� part.�� Therein,�� the�� RTC�� resolved�� to�� exclude�� the replacement� cost� of� improvements�� from� the� total� award� since� Spouses Bunsay acknowledged,� in their Comment to the MPR, that they had already received payment for these improvements. ¹⁵

However,� with respect to the value of CGT and other transfer taxes, the RTC held:

[With� respect� to]� the� aspect� of� payment� of� [CGT]� and� other transfer� tax,� the [RTC]� finds� the argument� of [DPWH]� that� it has been ordered to pay [CGT] and other transfer taxes to be misplaced and misleading.

The� [RTC]� did� not� order� [DPWH]� to� pay the� [CGT]� and other transfer� taxes.� What was� ordered of� [DPWH]� is� to� pay� the consequential damages� constituting� the� value�� [of� CGT]�� and�� other transfer taxes.¹⁶ (Emphasis and underscoring supplied)

Aggrieved, DPWH filed the present Petition via Rule 45 of the Rules of Court on March 4, 2013.

In compliance with the Court's directive, Spouses Bunsay filed their Comment ¹⁷ to the Petition, to which DPWH filed its Reply.¹⁸� Thereafter, the Petition was submitted for resolution.

Here, DPWH insists that by directing it to pay consequential damages equivalent to the value of CGT and other transfer taxes, the RTC indirectly held DPWH liable for payment of taxes for which it cannot be charged.

For� its� part,� Spouses� Bunsay� argue that� the consequential� damages should� be� understood� in� its� general� sense� so� as� to� permit� recovery� of damages� arising� from� "some� involuntary� act� which� is� prejudicial� to� the person entitled [to] the same."¹⁹


The sole issue for the Court's� resolution is whether the RTC erred in awarding�� consequential�� damages� equivalent� to� the� value� of� CGT� and transfer taxes in favor of Spouses Bunsay.


The Petition is granted.

The crux of �� �the �� �controversy �� �is �� �hinged �� �on �� �the �� �definition �� �of "consequential� damages" in the context of an expropriation proceeding.

Rule� 67� of� the� Rules� of� Court� governs� expropriation. proceedings. With respect to consequential damages, Section 6 of Rule 67 states:

SEC. 6. Proceedings by commissioners.- Before entering upon the� performance� of� their� duties,� the� commissioners�� shall� take� and subscribe an oath that they will faithfully perform their duties as commissioners,� which� oath� shall� be� filed� in� court� with� the� other proceedings in� the� case. Evidence may� be introduced� by� either� party before the commissioners who are authorized to administer oaths on hearings before them, and the commissioners shall, unless the parties consent to the contrary, after due notice to the parties to attend, view and examine the property sought to be expropriated and its surroundings, and may� measure� the� same,� after� which� either� party� may,� by� himself� or counsel,� argue� the� case. The� commissioners�� shall� assess� the consequential damages� to� the� property not� taken� and� deduct� from such� consequential damages� the consequential benefits� to be derived by the owner� from� the� public� use or� purpose� of the� property taken, the operation of its franchise� by the corporation or the carrying on of the business� of the corporation or person� taking� the property. But in no case shall the consequential benefits assessed exceed the consequential damages assessed, or the owner be deprived of the actual value of his property so taken. (Emphasis and underscoring supplied)

In Republic v. Court� of� Appeals,²⁰� the� Court explained� that consequential damages may be awarded to the owner if, as a result of the expropriation, the remaining portion� not so expropriated suffers from an impairment or decrease in value.²¹

From the foregoing, it becomes clear that the award of consequential damages tepresenting� the value of CGT and other transfer taxes in favor of Spouses Bunsay was improper.

To recall, the expropriation� covered the entire Disputed Property, that is, the entire 100-square meter lot covered by Spouses Bunsay's� TCT No. V- 16548.� Hence,� there� is� no� basis� for� an� award� of� consequential� damages where there is no "remaining portion" to speak of, as in this case.

In any event, even if there was a "property� not taken" or "remaining portion" to speak� of, the award of consequential� damages� constituting� the value of CGT and transfer taxes would still be improper, in the absence of evidence� showing� that� said� remammg� portion� had� been� impaired� or� had suffered� a decrease� in value� as a result� of the� expropriation.� The Court's ruling in Republic� v. Spouses Salvador ²²� (Spouses� Salvador)� involving the same expropriating authority, project and handling court, is on all fours.

In Spouses Salvador, DPWH filed a complaint for expropriation concerning�� an� 83-square� meter� portion� of� a� 229-square�� meter� property registered� in the� name� of the� respondents� therein,� Spouses� Senando� and Josefina�� Salvador�� (Spouses�� Salvador).�� Like� Spouses�� Bunsay,� Spouses Salvador also received checks from DPWH representing� the zonal value of the expropriated� portion and the cost of the improvements built thereon. However,� in addition� to the sum received� by Spouses� Salvador,� the RTC also directed DPWH to pay consequential� damages "equivalent� to the value of� the� [CGT]� and� other� taxes� necessary� for� the� transfer� of� the� subject property in the Republic's name."²³

Hence, DPWH assailed the propriety of the award of consequential damages� therein,� as it does� here. Resolving� the� issue, the� Court� held, as follows:

We likewise rule that� the RTC� committed a serious error when it directed the Republic to pay respondents consequential damages equivalent� to� the�� value�� of� the�� capital� gains�� tax�� and�� other�� taxes necessary for the transfer of the subject property.

"Just� compensation� [is defined as] the full and fair equivalent� of the property� sought� to� be expropria1ted. x x x The� measure is not� the taker's gain� but� the� owner's loss. [The compensation,� to be just,] must be fair not only to the owner but also to the taker."

In order to determine just compensation, the trial court should first ascertain the market value of the property by considering the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape, location, and the tax declarations� thereon. If as a result� of the expropriation, the� remaining lot suffers from� an impairment or decrease in value,� consequential damages may� be awarded by tine trial� court, provided that� the consequential benefits� which� may arise� from� the expropriation do not exceed said� damages suffered by the owner� of the property.

While it is true that "the determination of the amount of just compensation�� is� within� the� court's�� discretion,� it� should� not� be� done arbitrarily or capriciously. [Rather,] it must [always] be based on all established� rules, upon correct legal principles and competent� evidence." The court cannot base its judgment on mere speculations and surmises.

In the present case, the RTC deemed it "fair and just that x x x whatever� is the value of the [CGT] and all other taxes necessary for the transfer of the subject property to the [Republic] are but consequential damages that should be paid by the latter." x x x

xxxx

This is clearly an error. It is settled� that� the transfer of property through expropriation proceedings is a sale� or� exchange within� the meaning� of� Sections�� 24(D)� and�� 56(A)(3)�� of� the�� National Internal Revenue Code,� and�� profit�� from�� the� transaction� constitutes capital gain.� Since�� [CGT]�� is� a� tax� on� passive� income,�� it� is� the� seller,� or respondents in this case, who are liable to shoulder the tax.

In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013 dated December 18, 2013, has constituted the DPWH as a withholding agent tasked to withhold the 6% final withholding tax in the expropriation of real property for infrastructure projects. Thus, as far as the� government is concerned, the [CGT] in expropriation proceedings remains a liability of the seller, as it is a tax on the seller's gain from the sale of real property.

Besides,� as� previously explained, consequential� damages� are only�� awarded� if� as� a� result�� of� the� expropriation,� the�� remaining property of� the� owner�� suffers from� an� impairment or� decrease� in value. In this case, no evidence was submitted to prove any impairment or decrease in value of the subject property as a result of the expropriation. More significantly, given that the payment of [CGT] on the transfer of the subject property has no effect on the increase or decrease in value of the remaining property, it can hardly be considered as consequential damages that� may� be� awarded� to� respondents.²⁴ (Emphasis� and� underscoring supplied while those in the original omitted)

The Court's ruling� in Spouses Salvador is clear -CGT may not� be awarded� in� the� form� of� consequential damages� since� the� term� assumes� a fixed� definition� in the context� of expropriation proceedings; it is limited� to the impairment or decrease� in value� of the portion� which� remains� with the affected owner after expropriation.

It� must� be� clarified,�� however,�� that� the� ruling� in� Spouses� Salvador should� not be interpreted to preclude� the courts� from� considering the value of�� CGT�� and�� other�� transfer�� taxes�� in�� determining� the�� amount�� of�� just compensation to be awarded� to the affected owner.

To recall, Section 5 of Republic Act No. (RA) 8974²⁵ sets forth the standards� in the determination of just compensation. It states:

SEC. 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. (Emphasis supplied)

CGT,� being� a tax� on� passive� income,� is� imposed� by� the� National Internal� Revenue� Code� on� the� seller� as� a� consequence� of� the� latter's presumed� income� from� the� sale� or� exchange� of� real� property.� Notably however,� the� transfer� of� real� property� by way� of� expropriation� is not an ordinary sale contemplated under Article 1458²⁶ of the Civil Code. Rather, it is� akin� to� a "forced� sale"� or� one� which� arises� not� from� the� consensual agreement of the vendor and vendee, but by compulsion� of law.²⁷� Unlike in an ordinary sale wherein the vendor sets and agrees on the selling price, the compensation� paid� to� the� affected� owner� in� an� expropriation� proceeding comes in the form of just compensation determined by the court.

In turn, just compensation is defined as the fair and full equivalent of the loss incurred by the affected owner²⁸� More specifically:

x x x [J]ust compensation in expropriation� cases is defined "as the full and fair equivalent of the property taken from its owner by the expropriator. The Court repeatedly stressed that the true measure is not the taker's� gain but the owner's loss. The word� 'just' is used to modi1fy the meaning� of� the� word�� 'compensation' to� convey� the� idea� that�� the equivalent to� be� given� for� the� property to� be� taken�� shall� be� real, substantial, full and� ample."²⁹ (Emphasis supplied)

To recall, Section 6, Rule 67 of the Rules of Court mandates that "in no case shall x x x the owner be deprived of the actual value of his property so taken."³⁰� Since just compensation� requires that real, substantial,� full and ample equivalent be given for the property taken, the loss incurred by the affected� owner� necessarily� includes� all� incidental� costs� to� facilitate� the transfer of the expropriated property to the expropriating authority, including the CGT, other taxes and fees due on the forced sale. These costs must be taken into consideration� in determining� just compensation� in the same way these costs are factored� into the selling� price of real property� in an ann's length� transaction.�� Notably,� the� value� of� the� expropriated�� property,� as declared by the affected owner, and the current selling price of similar lands are factors listed under Section 5 of RA 8974.

Here,� Spouses� Bunsay� received,� as� just� compensation,� an� amount equal� to� the� sum� of� the� zonal� value� of� the� Disputed� Property� and� the replacement cost of the improvements� built thereon. Evidently, the value of CGT and transfer taxes due on the transfer of the Disputed Property was not factored into the amount paid to Spouses Bunsay, but instead, separately awarded as consequential damages.

While the award of consequential� damages equivalent to the value of CGT and transfer taxes must be struck down for being erroneous, the Court deems it just and equitable to direct the Republic to shoulder such taxes to preserve the compensation� awarded to Spouses Bunsay as a consequence of the expropriation. To stress, compensation, to be just, must be of such value as to fully rehabilitate� the affected owner; it must be sufficient to make the affected owner whole.

WHEREFORE,� premises� considered,� the� Petition� is� GRANTED. The� Order/Resolution� and� Order� respectively� dated� August� 23,� 2012� and January 10, 2013 rendered by the Regional Trial Court of Valenzuela City, Branch 270, in Civil Case No. 188-V-11 are MODIFIED,� in that the award of consequential� damages, equivalent� to the value of capital gains tax and other transfer taxes, is DELETED.

Nevertheless,� the petitioner� is DIRECTED to shoulder� such capital gains tax and other transfer taxes as part of the just compensation due the respondents.

SO ORDERED.

Peralta, C.J., (Chairperson), Caguioa, J. Reyes, Jr., Lazaro-Javier, Lopez, JJ., concur.

Endnotes:

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¹Rollo, pp. 9-19.

² Id. at 20-23. Penned by Presiding Judge Evangeline M. Francisco.

³ Id. at 24-25.

⁴ Executive Order No. 292, ADMTNISTRATIVE CODE OF 1987,� Book� IV, Title V, Chapter I, Sec. 1.

⁵Rollo, p. 10.

⁶ Id. at 34-49.

⁷ Id. at 11.

⁸ ld. at 20.

⁹ Id. 11, 20.

¹⁰� Id. at 11.

¹¹ Id.

¹² ld. at 22.

¹³ See Expropriation� Complaint,� id. at 36.

¹⁴ See Motion for Partial Reconsideration� (Re: Order/Resolution� dated August 23, 2012), id. at 26-33.

¹⁵ Id. at 24.

¹⁶ Id.

¹⁷ Id. at 120-130.

¹⁸ Id. at 144-153.

¹⁹ See Comment, id. at 124.

²⁰ 612 Phil. 965 (2009).

²¹ Id. at 980, 982.

²² 810 Phil. 742 (2017).

²³� Id. at 745.

²⁴ Id.at746-749.

²⁵ AN� ACT� TO FACILITATE THE ACQUISITION OF RIGHT-OF-WAY,� SITE OR LOCATION FOR NATIONAL GOVERNMENT INFRASTRUCTURE� PROJECTS AND FOR OTI--IER PURPOSES, November 7, 2000.

²⁶ Article 1458 states:

ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

xxxx

²⁷ See Hospicio de San Jose De Barili, Cebu City v. Department of Agrarian� Reform, 507 Phil. 585, 597- 598 (2005) in reference to expropriation of lands under agrarian reform.

²⁸ See Evergreen Manufacturing Corp. v. Republic, 817 Phil. 1048, 1058 (2017).

²⁹ Id. at 1058-1059.

³⁰ Underscoring supplied.