The Supreme Court (SC) has reiterated that just compensation in land expropriation cases must be based on all relevant factors, not just market value.

In a Decision written by Associate Justice Samuel H. Gaerlan, the SC’s Third Division sent back to the Regional Trial Court (RTC) the case between the City Government of Pasay (Pasay LGU) and Arellano University (University) to reassess the amount of just compensation owed to the University.

The University filed a complaint before the RTC in 2015, claiming that the Pasay LGU took its 805-square-meter parcel of land in Barangay San Isidro and turned it into a public road, now known as Menlo Street, without going through proper expropriation proceedings or paying just compensation.

After mediation failed, both parties agreed to refer the matter to a board of commissioners made up of Pasay LGU officials. The board used a base value of PHP200 per square meter (sqm) based on the 1978 General Revision of the City Assessor’s Office, then added 6% annual interest from 1978, the year the street was discovered, up to 2017, resulting in a value of PHP2,060/sqm.   

The University disagreed with the computation, arguing that the interest should be based on the rates published by the Bangko Sentral ng Pilipinas. Applying this and other factors such as inflation, fiscal policies, and fluctuations in currency rates, the University proposed a total compensation of PHP 5,793,664.63.  

The RTC adopted the commissioners’ base value but applied a different interest rate, ordering Pasay LGU to pay PHP 161,000.00 plus 12% annual interest from 1978 to 2018.

The CA ruled that the RTC’s computation relied only on the 1978 assessment and ignored other relevant factors and thus sent the case back to the RTC.

The SC agreed, finding that the RTC’s decision was based on incomplete data.

Under Article III, Section 9 of the Constitution, private property cannot be taken for public use without just compensation. The SC emphasized that just compensation must be real, substantial, full, and ample, and that determining this amount is a matter for the courts to decide.

The SC clarified that although local government assessors provide appraisals, these are not controlling in expropriation cases. Such appraisals often cover broad areas and do not account for specific property differences. They rely on general descriptions and may be inaccurate. And while tax values can serve as a guideline, they cannot substitute for a comprehensive assessment of just compensation.

Thus, courts must use a “totality of circumstances” approach, considering all facts about the property’s condition, surroundings, existing improvements, and capabilities. These include the zonal valuation of the Bureau of Internal Revenue, acquisition cost, tax declarations, size, shape, location, and the current value of similar properties.

The 2006 Manual on Real Property Appraisal and Assessment Operations issued by the Bureau of Local Government Finance further lists other factors that must be considered: property classification and use; development costs for improving the land; declared value by the owner; current selling price of similar nearby properties; and compensation for removing improvements.

In this case, the RTC relied only on the Pasay City Assessor’s 1978 assessment. The BIR’s zonal valuation was barely mentioned, and no other data sources appear to have been considered.  Since the amount of just compensation is based on incomplete or inaccurate data, the case must be sent back to the trial court.

The SC also upheld the use of 6% annual interest, consistent with the prevailing rate set by the Bangko Sentral ng Pilipinas. It ruled that the property’s value at the time of taking should earn interest at the same rate from the finality of judgment until full payment.

In a Separate Opinion, Associate Justice Alfredo Benjamin S. Caguioa emphasized that the interest arising from expropriation should be treated not as a concept of “forbearance of money” in favor of the State due to its delay in paying just compensation. Instead, he asserted that such interest forms part of the compensation itself, ensuring that it is truly just. (Courtesy of the SC Office of the Spokesperson)

This press release is prepared for members of the media and the general public by the SC Office of the Spokesperson as a simplified summary of the SC’s Decision. For the SC’s complete discussion of the case, please read the full text of the Decision in G.R. No. 260038, May 7, 2025, and the Separate Opinion of Associate Justice Caguioa.