Just Compensation in Expropriation: How Courts Value Property Beyond BIR Zonal Value

The government's power of eminent domain allows it to take private property for public use, but the Constitution requires payment of just compensation. A recurring question in expropriation cases is how to determine that compensation — specifically, whether the Bureau of Internal Revenue's zonal value should be the benchmark. In Republic of the Philippines v. Heirs of Spouses Luis J. Dela Cruz and Imelda Reyes (G.R. No. 245988, June 16, 2021), the Supreme Court clarified that zonal value is merely one factor, not the sole basis, for determining just compensation.

The Facts of the Case

The Department of Public Works and Highways filed a complaint for expropriation in 2007 to acquire portions of three parcels of land in Barangay Ugong, Valenzuela City, for the C-5 Northern Link Road Project. The government offered just compensation based on the BIR zonal value of P2,750.00 per square meter, totaling P495,200.07.

The property owners countered that the prevailing market value of similar properties in the area ranged from P8,000.00 to P10,000.00 per square meter. After the trial court issued the order of expropriation and writ of possession in November 2008, a Board of Commissioners was constituted to determine the property's value.

The Board recommended P15,000.00 per square meter, relying on a prior expropriation case involving a property in the same vicinity. The Regional Trial Court, however, fixed just compensation at P9,000.00 per square meter — a figure arrived at by considering the BIR zonal value, the owners' declared value, the Board's recommendation, and the property's location, shape, and classification. The Court of Appeals affirmed, and the government appealed to the Supreme Court.

The Issue

The central question was whether the courts erred in fixing just compensation at P9,000.00 per square meter, which was more than three times the BIR zonal value.

The Ruling

The Supreme Court denied the government's petition and affirmed the award, with a modification only on the reckoning period for legal interest.

The Court reiterated that just compensation is the full and fair equivalent of the property taken — measured not by the government's gain but by the owner's loss. It is the market value of the property at the time of taking, or at the time of filing the complaint, whichever comes first.

Zonal value is not conclusive. The Court emphasized that BIR zonal valuation is just one of several indices of fair market value. It cannot be the sole basis for just compensation. Section 5 of Republic Act No. 8974 lists the standards courts may consider, including the property's classification and use, the value declared by owners, the current selling price of similar lands, and the property's size, shape, location, and zonal valuation.

The factors are recommendatory, not mandatory. The Court noted that the word "may" in Section 5 of RA 8974 makes the standards permissive. Courts have discretion in determining just compensation, which is fundamentally a judicial function. Legislative enactments and executive issuances that fix the method of computing just compensation cannot supplant the court's own determination.

The trial court properly considered multiple factors. In this case, the RTC considered the BIR zonal value, the owners' declared value of P8,000.00 to P10,000.00, the Board's recommendation based on comparable properties, and evidence of the property's location, shape, and classification. The Court found this sufficient, noting that the award of P9,000.00 was reasonable and within the range declared by the owners.

Ocular inspection is not mandatory. The government argued that the Board of Commissioners failed to conduct an ocular inspection. The Court held that ocular inspection is only one means of ascertaining value; the Board and courts may rely on other evidence. Under RA 8974, the government may take possession and commence work before commissioners are even appointed, making ocular inspection sometimes impossible.

Interest on Just Compensation

The Court modified the reckoning period for legal interest. Under Section 10, Rule 67 of the Rules of Court, interest runs from the time of taking possession of the property, not from the filing of the complaint. Since the government took possession on November 12, 2008, interest accrued from that date: 12% per annum until June 30, 2013, and 6% per annum from July 1, 2013, pursuant to Bangko Sentral ng Pilipinas Circular No. 799.

Practical Takeaways

• BIR zonal value is not the ceiling for just compensation. Courts may award amounts significantly higher than zonal value if supported by evidence of the property's actual market value.
• Property owners should present evidence of comparable sales. The value declared by owners and the selling price of similar lands in the vicinity are relevant factors under Section 5 of RA 8974.
• Courts have broad discretion. The standards in RA 8974 are recommendatory; what matters is that the court considers relevant factors and arrives at a full and fair equivalent of the property.
• Interest runs from the taking of possession. Property owners are entitled to interest from the date the government actually took possession, not from the filing of the complaint.
• The interest rate depends on the period. The legal interest on the unpaid balance is 12% per annum for the period before July 1, 2013, and 6% per annum thereafter.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.