Case Summary (G.R. No. 205473)
Facts and Procedural Posture
DPWH undertook the C-5 Northern Link Road Project Phase 2 in Valenzuela City and filed a complaint for expropriation of the Disputed Property for the project's implementation. Notices sent to the Bunsays were returned unserved, and consequently, they did not file an answer. The RTC issued a writ of possession after DPWH deposited PHP 200,000 representing the zonal value and replacement cost of improvements. Later, the RTC ordered the expropriation of the property, awarding just compensation comprising zonal value and improvement costs and mandated payment of consequential damages equivalent to capital gains tax (CGT) and other transfer taxes for title transfer. DPWH challenged the inclusion of the replacement cost for improvements and consequential damages for CGT and transfer taxes through a Motion for Partial Reconsideration.
RTC Decision on Compensation and Consequential Damages
The RTC partially granted DPWH’s motion by excluding the replacement cost of improvements from just compensation, as the Bunsays acknowledged prior receipt of the payment. However, it maintained the award of consequential damages representing the CGT and other transfer taxes, interpreting consequential damages as including such costs incurred by the property owner in transferring ownership to the government. The RTC further directed the Register of Deeds to facilitate transfer upon compliance by the parties.
Issue Presented to the Supreme Court
The sole issue is whether the RTC erred in awarding consequential damages equivalent to the value of capital gains tax and other transfer taxes in favor of the Spouses Bunsay in the context of expropriation proceedings.
Legal Framework on Consequential Damages in Expropriation
Rule 67, Section 6, of the Rules of Court defines consequential damages as damages assessed to the remaining portion of the property not taken, offset by any consequential benefits derived from the public use or franchise. Consequential damages are appropriate where the value of the property remaining after expropriation suffers an impairment or diminution due to the taking.
Supreme Court's Analysis and Jurisprudence
The Supreme Court explained that consequential damages apply only if the remaining property suffers impairment or decrease in value. In this case, the entire property was expropriated; no portion remained, eliminating the basis for consequential damages. Even if a portion remained, no evidence was presented showing any impairment due to expropriation.
The Court referred to a precedent involving the same parties (Republic v. Spouses Salvador) where the award of consequential damages equivalent to CGT and transfer taxes was held improper. The ruling emphasized that CGT is a tax on the passive income of the seller and thus is the obligation of the affected owner, not the government. Furthermore, the transfer of property through expropriation is a forced sale by operation of law, distinct from a consensual sale, and just compensation is designed to cover the owner’s loss, not the taker's gain.
Distinction Between Consequential Damages and Just Compensation
The Court clarified that while CGT and transfer taxes may not be recoverable as consequential damages, they should be considered in calculating just compensation. Section 5 of Republic Act No. 8974 enumerates factors for valuation, including the owner’s declared value and comparable selling prices, and implicitly acknowledges costs necessary for transfer and rehabilitation of the owner.
The Court unde
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Background and Procedural History
- The case is a petition for review on certiorari under Rule 45 of the Rules of Court, contesting the Order/Resolution dated August 23, 2012, and Order dated January 10, 2013, issued by the Regional Trial Court (RTC) of Valenzuela City, Branch 270, in Civil Case No. 188-V-11.
- The RTC ordered the expropriation of a 100-square meter lot in Valenzuela City covered by Transfer Certificate of Title (TCT) No. V-16548, registered in the names of respondents Spouses Marcelino and Nenita Bunsay.
- The RTC also directed the Department of Public Works and Highways (DPWH), representing the Republic of the Philippines, to pay consequential damages to the spouses equivalent to the value of the capital gains tax (CGT) and other taxes required for transferring the property’s title.
- The Petition challenged the award of consequential damages, arguing the impropriety of holding the government liable for tax payments that traditionally fall on the seller in property transactions.
Factual Context and Government Project
- DPWH serves as the government's engineering and construction arm, tasked with infrastructure projects aligning with national development objectives.
- The specific project involved is the C-5 Northern Link Road Project Phase 2 (Segment 9), aimed at connecting the North Luzon Expressway (NLEX) to McArthur Highway in Valenzuela City.
- To facilitate this project, DPWH instituted an expropriation complaint against Spouses Bunsay to acquire the disputed property needed for the infrastructure development.
- Notices were sent to Spouses Bunsay but were returned unserved due to their relocation, and as anticipated, they filed no Answer to the complaint.
Trial Court Proceedings and Compensation Award
- The RTC scheduled a hearing on the issuance of the writ of possession after which DPWH deposited Php 200,000.00 representing zonal value and replacement cost of property improvements.
- The RTC issued a writ of possession in favor of DPWH on February 20, 2012.
- The court later instructed both parties to nominate representatives to the Board of Commissioners to determine just compensation.
- During subsequent hearings, DPWH revealed that Spouses Bunsay had claimed the deposited checks despite not being formally served.
- DPWH moved for these sums to be deemed as just compensation, which the RTC granted.
- The RTC's initial award included:
- Replacement cost of two one-storey residential houses totaling Php 505,374.71.
- Consequential damages including the value of CGT and other taxes necessary for title transfer.
- The RTC also ordered the turnover of the original owner’s duplicate title and the eventual transfer of ownership to DPWH.
Motion for Partial Reconsideration and RTC’s Further Order
- DPWH filed a Motion for Partial Reconsideration (MPR) seeking to remove the replacement cost of improvements and consequential damages related to CGT and taxes from the compensation.
- The RTC granted the MPR in part, excluding the replacement cost for improvements since Spouses Bunsay had acknowledged receipt of these payments.
- However, the RTC maintained the award of consequential damages covering CGT and other transfer taxes, interpreting this as distinct from an order to pay the taxes but as damages equivalent to these taxes.
- This distinction was significant in th