Eminent Domain: How Courts Fix Just Compensation and Interest in Expropriation

When the government takes private property for public use, the Constitution guarantees the owner "just compensation." But what exactly does "just" mean, and when must interest be paid on top of the property's value? A 2017 Supreme Court decision clarifies these questions. The ruling is a practical guide for landowners and government agencies navigating expropriation proceedings.

The Facts of the Case

The Department of Public Works and Highways (DPWH) sought to expropriate a 173.08-square-meter portion of Evergreen Manufacturing Corporation's property in Pasig City for the Marikina Bridge and Access Road project. The government deposited P1,038,480.00—100% of the property's value based on the Bureau of Internal Revenue (BIR) zonal valuation of P6,000.00 per square meter—and took possession of the property in April 2006.

Three commissioners appointed by the trial court recommended different values: P15,000.00, P30,000.00, and P37,500.00 per square meter. The Regional Trial Court fixed just compensation at P25,000.00 per square meter. The Court of Appeals increased this to P35,000.00. Both parties appealed to the Supreme Court.

The Issue: What Is the Correct Amount of Just Compensation?

The Supreme Court emphasized 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. The Court noted that the true measure is the value of the property at the time of taking—not at the time of inspection or trial.

The commissioners in this case relied on BIR zonal valuations and court decisions from 2000, four years before the taking in 2004. They also conducted an ocular inspection in 2008, four years after the taking. The Court found this problematic: the value must reflect the property's condition at the time of taking, not at some earlier or later date.

However, the Court rejected the government's argument that just compensation should be based solely on the BIR zonal valuation of P6,000.00 per square meter. Zonal valuation, while one indicator of fair market value, cannot by itself be the sole basis for just compensation.

How the Court Computed the Value

Since the 2000 value was P26,100.00 per square meter and the 2008 selling price ranged from P35,000.00 to P40,000.00, the Court took the mean to approximate the 2004 value. Using the higher 2008 figure of P40,000.00 and the 2000 value of P26,100.00, the Court arrived at P33,050.00 per square meter, or a total of P5,720,294.00.

The Court also affirmed that the property should be classified as commercial, not industrial, based on its value and character at the time of taking.

Interest on Unpaid Just Compensation

The Court ruled that the government's initial deposit does not constitute full payment of just compensation. Under Republic Act No. 8974, which governs expropriation for national infrastructure projects, the government must make two payments: the initial deposit (to obtain a writ of possession) and the difference between that deposit and the final amount adjudged by the court.

Because the government had not fully paid just compensation, interest was due. The Court applied the rule from Eastern Shipping Lines, Inc. v. Court of Appeals: the difference between the final amount and the initial deposit earns 12% interest per annum from the date of taking (April 21, 2006) until June 30, 2013. From July 1, 2013 onward, following BSP Circular No. 799, the rate is 6% per annum until the decision becomes final. The total amount then earns 6% interest until full payment.

Practical Takeaways

• Just compensation is valued at the time of taking, not at the time of trial, inspection, or judgment. Evidence must reflect the property's value as of that date.
• BIR zonal valuation is not the sole basis for just compensation. Courts consider multiple factors, including location, size, neighborhood, and comparable sales.
• The initial deposit under RA 8974 is only a partial payment. The government must pay the difference between the deposit and the final adjudged amount, plus interest.
• Interest on unpaid just compensation runs from the date of taking, not from the date the court decision becomes final. The rate is 12% per annum until June 30, 2013, and 6% per annum thereafter.
• Property owners should present clear evidence of the property's value at the time of taking, including documentary evidence and comparable sales from that period.

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