G.R. No. 205473 - Republic vs. Spouses Bunsay

Case Summary (G.R. No. 205473)

Relevant Dates (procedural)

Notices to respondents returned unserved; writ of possession issued by the RTC on February 20, 2012; RTC Resolution dated August 23, 2012; RTC Order dated January 10, 2013; petition for certiorari filed by DPWH under Rule 45.

Applicable Law and Authorities

Rule 67, Section 6, Rules of Court (provisions on commissioners and assessment of consequential damages).
Republic Act No. 8974, Section 5 (standards for assessment of just compensation).
National Internal Revenue Code provisions cited in the prompt (Sections 24(D) and 56(A)(3) referenced regarding sale/exchange and capital gains tax).
Civil Code Article 1458 (contract of sale).
Precedents cited in the decision: Republic v. Court of Appeals; Republic v. Spouses Salvador; Evergreen Manufacturing Corp. v. Republic.
BIR Ruling No. 476-2013 (as referenced) regarding withholding role of DPWH in expropriation.

Factual Background

DPWH initiated expropriation of a 100-square meter lot (the Disputed Property) titled in the name of Spouses Bunsay to implement the C-5 Northern Link Road Project. Notices were returned with the notation “party moved,” and respondents did not file an answer. At the hearing on the writ of possession DPWH deposited checks totaling Php200,000.00, representing the zonal value and replacement cost of improvements. The RTC issued a writ of possession and later directed submission of nominees to the commissioners for determination of just compensation.

RTC Resolution and Subsequent Order

By its August 23, 2012 Resolution the RTC condemned the Disputed Property for public use, directed DPWH to issue a manager’s check in the amount of Php505,374.71 for the total valuation of improvements, and ordered DPWH to pay consequential damages “constituting the value of the capital gains tax (CGT) and other taxes necessary for the transfer” of the property. The RTC’s January 10, 2013 Order granted DPWH’s motion for partial reconsideration in part, deleting the replacement cost of improvements from the award (since respondents had already received payment for those) but retaining the award of consequential damages equivalent to CGT and transfer taxes. The RTC characterized those amounts as consequential damages rather than an order to pay taxes.

Issue Presented

Whether the RTC erred in awarding consequential damages equivalent to the value of capital gains tax and other transfer taxes in favor of Spouses Bunsay.

Legal Standard on Consequential Damages in Expropriation

Under Rule 67, Section 6, consequential damages in expropriation are assessed to the property not taken and must be offset by any consequential benefits to the owner resulting from the public use. Consequential damages are intended to compensate for impairment or decrease in value of the remaining portion of an owner’s property caused by the taking. Precedent (Republic v. Court of Appeals) confirms that consequential damages are appropriate only if the remaining portion suffers impairment or decreased value as a result of expropriation.

Application of Legal Standard to the Facts

The Disputed Property was the entire 100-square meter lot; no portion remained after expropriation. Consequently, there was no “property not taken” to suffer impairment, and therefore no factual or legal basis to award consequential damages under the Rule 67 paradigm. Even assuming, arguendo, that a remaining portion existed, the record contained no evidence establishing impairment or decreased value as required to sustain an award of consequential damages.

Precedent and Tax Characterization

Republic v. Spouses Salvador is directly on point: the Court there held that consequential damages cannot properly include CGT because CGT is a tax on the seller’s presumed gain from a sale and thus remains the seller’s liability in ordinary transactions. The Court emphasized that expropriation is akin to a forced sale but that just compensation must be measured by the owner’s loss, not the taker’s gain. The Court acknowledged that the BIR had constituted DPWH as a withholding agent (BIR Ruling No. 476-2013) but nevertheless treated CGT as the seller’s tax. Moreover, consequential damages are conceptually limited to diminution in value of remaining property and do not include taxes that do not affect that diminution.

Relation of Taxes to Just Compensation

Although CGT and transfer taxes are not consequential damages in the Rule 67 sense, the Court recognized that the aim of just compensation is to provide the full and fair equivalent of the loss and to rehabilitate the affected owner. Section 5 of RA 8974 lists factors courts may consider in assessin

Case Syllabus (G.R. No. 205473)

Court and Case Identifiers

Reported at 867 Phil. 717; 117 OG No. 13, 4043 (March 29, 2021), First Division.
G.R. No. 205473, decision dated December 10, 2019.
Decision authored by Justice Caguioa; Peralta, C.J. (Chairperson), and Justices Reyes, Jr., Lazaro-Javier, and Lopez concurred.
Petition for review on certiorari filed under Rule 45 of the Rules of Court.

Nature of the Proceeding and Relief Sought

Petition for review on certiorari by the Republic of the Philippines, represented by the Department of Public Works and Highways (DPWH), seeking relief from: (a) the Regional Trial Court (RTC) of Valenzuela City, Branch 270, Order/Resolution dated August 23, 2012 (assailed Resolution); and (b) Order dated January 10, 2013 (assailed Order) in Civil Case No. 188-V-11.
DPWH sought review of the RTC's directives to expropriate a 100-square meter lot (the Disputed Property) covered by Transfer Certificate of Title No. V-16548, issued in the names of respondents Spouses Marcelino and Nenita Bunsay (Spouses Bunsay), and the RTC's order to pay consequential damages equivalent to the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in the Republic’s name.

Relevant Government Actor and Project

Petitioner DPWH is described as the Republic’s engineering and construction arm tasked with planning, design, construction, and maintenance of infrastructure facilities, especially national highways, flood control and water resource development systems, and other public works in accordance with national development objectives (citing Executive Order No. 292, Administrative Code of 1987, Book IV, Title V, Chapter I, Sec. 1).
The subject public infrastructure project is the C-5 Northern Link Road Project Phase 2 (Segment 9), connecting the North Luzon Expressway (NLEX) to McArthur Highway in Valenzuela City (the Project).

Undisputed Factual Background

DPWH filed an Expropriation Complaint with Urgent Prayer for Issuance of Writ of Possession before the RTC as part of implementing the Project.
Notices sent to Spouses Bunsay were returned with the notation "party moved"; Spouses Bunsay did not file an answer.
Prior to issuance of a writ of possession, DPWH deposited checks totaling Two Hundred Thousand Pesos (Php200,000.00) with the RTC, representing the zonal value of the Disputed Property and the replacement cost of improvements thereon.
The RTC issued a Writ of Possession in favor of DPWH by Order dated February 20, 2012.
The RTC later directed the parties to submit nominees to the Board of Commissioners for determination of just compensation.
At the August 23, 2012 hearing, DPWH manifested that, although notices to the Spouses were returned unserved, Spouses Bunsay had already claimed the checks DPWH deposited; DPWH moved that the amount received by Spouses Bunsay be deemed as just compensation.

RTC August 23, 2012 Resolution (Assailed Resolution) — Dispositive Orders

The RTC rendered judgment condemning the Disputed Property, free from liens and encumbrances, for implementation of the Project, and vested title to DPWH for public use or purpose.
Directed DPWH to issue a manager’s check in the amount of Five Hundred Five Thousand Three Hundred Seventy-Four Pesos and Seventy-One Centavos (Php505,374.71), representing the total valuation of the improvements on the Disputed Property, in the name of Spouses Bunsay, and to deposit the check with the Office of the Clerk of Court, RTC Valenzuela City, within fifteen (15) days from receipt of the Resolution.
Ordered as consequential damages that DPWH pay the value of the capital gains tax (CGT) and other taxes necessary for transfer of the Disputed Property in DPWH’s name.
Directed Spouses Bunsay to turn over the owner’s duplicate certificate of title to DPWH and the Register of Deeds of Valenzuela City to effect the transfer of ownership and issue the corresponding certificate of title after compliance.

Basis for the RTC’s Valuation of Improvements

The RTC’s award of just compensation included replacement cost of two alleged improvements on the Disputed Property as asserted by DPWH in the Expropriation Complaint:
- A one-storey residential house (semi-concrete) with fence and steel gate: replacement cost Php330,604.35.
- A one-storey residential house (concrete) with upper concrete slab: replacement cost Php174,770.36.
These replacement-cost valuations aggregated to the Php505,374.71 manager’s check figure ordered deposited.

DPWH Motion for Partial Reconsideration (MPR) and RTC January 10, 2013 Order (Assailed Order)

DPWH filed an MPR seeking deletion of (a) the award corresponding to the replacement cost of improvements, and (b) the equivalent value of CGT and other transfer taxes from the RTC’s award.
The RTC granted the MPR in part, excluding the replacement cost of improvements from the total award because Spouses Bunsay acknowledged in their comment to the MPR that they had already received payment for those improvements.
With respect to CGT and other transfer taxes, the RTC held that it had not ordered DPWH to pay taxes per se but had ordered payment of consequential damages constituting the value of CGT and other transfer taxes.

Parties’ Positions on Petition

DPWH’s principal contention before the Supreme Court: the RTC erred in directing payment of consequential damages equivalent to CGT and transfer taxes because such taxes are not properly the subject of consequential damages and the Republic cannot be charged with taxes that are liabilities of the seller.
Spouses Bunsay’s contention: consequential damages should be understood in a general sense to permit recovery of damages arising from an involuntary act prejudicial to the person entitled to such damages.

Issue Presented to the Court

Whether the RTC erred in awarding consequential damages equivalent to the value of capital gai