Just Compensation and Legal Interest in Expropriation: What Property Owners Should Know

The Philippine Supreme Court has clarified how legal interest applies to unpaid just compensation in expropriation cases, a crucial ruling for property owners whose land is taken by the government. In Republic v. Macabagdal (G.R. No. 227215, January 10, 2018), the Court settled the applicable interest rates and the date from which they should run, ensuring landowners receive the full value of their property plus earnings lost during the delay.

The Facts of the Case

The Department of Public Works and Highways (DPWH) filed an expropriation complaint in 2008 to acquire a 200-square meter lot in Valenzuela City for the NLEX Segment 8.1 road project. The government deposited ₱550,000.00 (at ₱2,750.00 per square meter) as provisional payment and obtained a writ of possession on May 5, 2008.

The property owner, Leonor Macabagdal, was later substituted as defendant. A board of commissioners recommended just compensation of ₱9,000.00 per square meter, which the Regional Trial Court adopted. This left an unpaid balance after deducting the provisional deposit.

The Issue

The central question was whether the lower courts correctly imposed 12% interest per annum on the unpaid balance from the date of taking until full payment, or whether the rate should have been adjusted to 6% following Bangko Sentral ng Pilipinas Monetary Board Circular No. 799 (effective July 1, 2013).

The Supreme Court's Ruling

The Court partly granted the government's petition, affirming the just compensation amount but modifying the interest award.

Interest is part of just compensation. The Court reiterated that just compensation aims not to reward the owner but to compensate for the loss. When property is taken, its income-generating potential is also lost. Interest on the unpaid balance compensates the owner for this loss and constitutes the "real, substantial, full, and ample value" of the expropriated property required by the Constitution.

The applicable interest rates. The Court ruled that 12% interest per annum applies from the date of taking (May 5, 2008) until June 30, 2013. Beginning July 1, 2013, the rate becomes 6% per annum until full payment, consistent with BSP-MB Circular No. 799. The Court noted that prior cases cited by the respondent were decided before the circular's effectivity and were therefore inapplicable.

When interest starts running. The Court clarified that interest runs from the date of the writ of possession—not from the filing of the complaint—because it is from that date that the deprivation of property can be established.

Practical Takeaways

• Interest accrues from actual taking. Property owners are entitled to interest from the date the government takes possession, not from when the expropriation case is filed.
• Two-tier interest rates apply. Expect 12% per annum for the period before July 1, 2013, and 6% per annum thereafter, reflecting the BSP's adjustment of the legal interest rate.
• Provisional deposits reduce the balance. The interest is computed on the difference between the final just compensation and any initial deposit paid by the government.
• Just compensation includes potential income lost. The delay in full payment entitles landowners to interest as part of the constitutional guarantee of just compensation.
• Commissioners' findings carry weight. Courts give significant consideration to the board of commissioners' recommendations based on location, land classification, and comparable sales.

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