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This is a petition for review on certiorari^[1]  (Petition)  filed under Rule 45 of the Rules  of Court  against  the Order/Resolution^[2]    dated  August  23, 2012  (assailed  Resolution)  and  Order^[3]   dated  January  10,  2013  (assailed Order) of the Regional Trial Court of Valenzuela City, Branch 270 (RTC) in Civil Case No. 188-V-11.

The assailed Resolution  and Order: (i) directed the expropriation of a 100-square meter lot in Valenzuela  City covered  by Transfer Certificate  of Title  (TCT)  No.  V-16548   (Disputed   Property)   issued  in  the  name  of respondents  Spouses Marcelino  and Nenita Bunsay (Spouses Bunsay);  and (ii) ordered petitioner Republic of the Philippines (Republic), through the Department  of  Public  Works  and  Highways  (DPWH),  to  pay  Spouses Bunsay consequential  damages equivalent to the value of the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in its name.

The facts are undisputed.

DPWH is the Republic's  engineering  and construction  arm tasked to undertake  the  "planning,  design,  construction  and  maintenance  of infrastructure   facilities,  especially   national  highways,  flood  control  and water resource  development  system, and other public works in accordance with national development objectives."^[4]

Among  DPWH's   projects  is  the  C-5  Northern  Link  Road  Project Phase 2 (Segment 9) connecting the North Luzon Expressway (NLEX) to McArthur Highway, Valenzuela City (the Project).^[5]

In connection  with  the  implementation  of the Project,  DPWH  filed with  the RTC  a  Complaint  for Expropriation  with  Urgent  Prayer  for the Issuance of a Writ of Possession^[6] (Expropriation Complaint) against Spouses Bunsay, concerning the Disputed Property.^[7]

Records  show that while notices were sent to Spouses Bunsay, they were  returned  with  the  notation  "party   moved".  As  expected,  Spouses Bunsay did not file an Answer.^[8]

The RTC later scheduled a hearing on the issuance of the writ of possession  prayed for. During the hearing, DPWH deposited  checks in the total  amount  of  Two  Hundred  Thousand  Pesos  (Php200,000.00), representing    the   sum   of   the   Disputed   Property's  zonal   value   and replacement  cost of the improvements  built thereon.^[9]  Thereafter,  the RTC issued a Writ of Possession  in favor of DPWH in its Order dated February 20, 2012. ^[10]

Later still, the RTC directed the parties to submit their respective nominees to the Board of Commissioners for determination of just compensation. However, during the subsequent hearing held on August 23, 2012, DPWH manifested in open court that while all notices sent to Spouses Bunsay were returned unserved, they already claimed the checks that DPWH deposited with the RTC. Thus, DPWH moved that the amount received by Spouses   Bunsay   be   deemed   as   just   compensation   for   the   Disputed Property.^[11]

The     RTC     granted     DPWH's     oral     motion     through     the     assailed Resolution, the dispositive portion of which reads:

WHEREFORE, foregoing  considered,  judgment   is  hereby rendered  in favor  of [DPWH]  condemning  the [Disputed  Property], free from all liens and encumbrances for the purpose of implementing the construction  [of  the Project]  from NLEX  to McArthur  Highway, Valenzuela City, and vesting unto [DPWH] the title to the property so described for such public use or purpose.

[DPWH)  is directed to issue [a] manager's check  in the amount of Five Hundred Five Thousand Three Hundred Seventy-Four Pesos and   Seventy-One  Centavos  (Php   505,374.71),  representing   the  total valuation of the improvements  located on the [Disputed  Property],  in the name of [Spouses Bunsay] and to deposit the same [with] the Office of the Clerk of Court, Regional Trial Court, Valenzuela City within fifteen (15) days from receipt of this Resolution.

As consequential damages, [DPWH] is further directed to pay the  value  of the  [CGT] and  other  taxes  necessary for  the  transfer of the [Disputed Property] in [DPWH's) name.

[Spouses Bunsay are] hereby directed to tum-over the owner's duplicate certificate of title to [DPWH].

After [the] parties have complied x x x, the Register of Deeds of Valenzuela  City  is  directed  to  effect  the  transfer  of  ownership  of  the [Disputed Property] to [DPWH] and to issue the corresponding certificate of title X X X.

SO ORDERED.^[12] (Emphasis supplied)

The RTC's  award of just compensation represented the sum of the replacement  cost  of  the  following  improvements   built  on  the  Disputed Property, as alleged by DPWH in the Expropriation Complaint:

[1. A] one-storey residential house (semi-concrete)  with x x x [f]ence and [s]teel   [g]ate,  the  replacement   cost  of  which  is  valued  at  Three Hundred Thirty Thousand Six Hundred Four Pesos and Thirty-Five Centavos (Php 330,604.35); and

[2. A] one[-]storey  residential  house (concrete)  with upper concrete slab, the replacement cost of which is valued at One Hundred Seventy-Four Thousand   Seven  Hundred  Seventy  Pesos  and  Thirty-Six  Centavos (Php 174,770.36).^[13]

DPWH filed a Motion for Partial Reconsideration (MPR), praying that the award corresponding to the replacement cost of improvements, and equivalent value of CGT and other transfer taxes be deleted.^[14]

After due proceedings, the RTC issued the assailed Order granting DPWH's    MPR   in   part.   Therein,   the   RTC   resolved   to   exclude   the replacement  cost  of  improvements   from  the  total  award  since  Spouses Bunsay acknowledged,  in their Comment to the MPR, that they had already received payment for these improvements. ^[15]

However,  with respect to the value of CGT and other transfer taxes, the RTC held:

[With  respect  to]  the  aspect  of  payment  of  [CGT]  and  other transfer  tax,  the [RTC]  finds  the argument  of [DPWH]  that  it has been ordered to pay [CGT] and other transfer taxes to be misplaced and misleading.

The  [RTC]  did  not  order  [DPWH]  to  pay the  [CGT]  and other transfer  taxes.  What was  ordered of  [DPWH]  is  to  pay  the consequential damages  constituting  the  value   [of  CGT]   and   other transfer taxes.^[16] (Emphasis and underscoring supplied)

Aggrieved, DPWH filed the present Petition via Rule 45 of the Rules of Court on March 4, 2013.

In compliance with the Court's directive, Spouses Bunsay filed their Comment ^[17] to the Petition, to which DPWH filed its Reply.^[18]  Thereafter, the Petition was submitted for resolution.

Here, DPWH insists that by directing it to pay consequential damages equivalent to the value of CGT and other transfer taxes, the RTC indirectly held DPWH liable for payment of taxes for which it cannot be charged.

For  its  part,  Spouses  Bunsay  argue that  the consequential  damages should  be  understood  in  its  general  sense  so  as  to  permit  recovery  of damages  arising  from  "some  involuntary  act  which  is  prejudicial  to  the person entitled [to] the same."^[19]


The sole issue for the Court's  resolution is whether the RTC erred in awarding   consequential   damages  equivalent  to  the  value  of  CGT  and transfer taxes in favor of Spouses Bunsay.


The Petition is granted.

The crux of     the     controversy     is     hinged     on     the     definition     of "consequential  damages" in the context of an expropriation proceeding.

Rule  67  of  the  Rules  of  Court  governs  expropriation. proceedings. With respect to consequential damages, Section 6 of Rule 67 states:

SEC. 6. Proceedings by commissioners.- Before entering upon the  performance  of  their  duties,  the  commissioners   shall  take  and subscribe an oath that they will faithfully perform their duties as commissioners,  which  oath  shall  be  filed  in  court  with  the  other proceedings in  the  case. Evidence may  be introduced  by  either  party before the commissioners who are authorized to administer oaths on hearings before them, and the commissioners shall, unless the parties consent to the contrary, after due notice to the parties to attend, view and examine the property sought to be expropriated and its surroundings, and may  measure  the  same,  after  which  either  party  may,  by  himself  or counsel,  argue  the  case. The  commissioners   shall  assess  the consequential damages  to  the  property not  taken  and  deduct  from such  consequential damages  the consequential benefits  to be derived by the owner  from  the  public  use or  purpose  of the  property taken, the operation of its franchise  by the corporation or the carrying on of the business  of the corporation or person  taking  the property. But in no case shall the consequential benefits assessed exceed the consequential damages assessed, or the owner be deprived of the actual value of his property so taken. (Emphasis and underscoring supplied)

In Republic v. Court  of  Appeals,^[20]  the  Court explained  that consequential damages may be awarded to the owner if, as a result of the expropriation, the remaining portion  not so expropriated suffers from an impairment or decrease in value.^[21]

From the foregoing, it becomes clear that the award of consequential damages representing  the value of CGT and other transfer taxes in favor of Spouses Bunsay was improper.

To recall, the expropriation  covered the entire Disputed Property, that is, the entire 100-square meter lot covered by Spouses Bunsay's  TCT No. V- 16548.  Hence,  there  is  no  basis  for  an  award  of  consequential  damages where there is no "remaining portion" to speak of, as in this case.

In any event, even if there was a "property  not taken" or "remaining portion" to speak  of, the award of consequential  damages  constituting  the value of CGT and transfer taxes would still be improper, in the absence of evidence  showing  that  said  remaining  portion  had  been  impaired  or  had suffered  a decrease  in value  as a result  of the  expropriation.  The Court's ruling in Republic  v. Spouses Salvador ^[22]  (Spouses  Salvador)  involving the same expropriating authority, project and handling court, is on all fours.

In Spouses Salvador, DPWH filed a complaint for expropriation concerning   an  83-square  meter  portion  of  a  229-square   meter  property registered  in the  name  of the  respondents  therein,  Spouses  Senando  and Josefina   Salvador   (Spouses   Salvador).   Like  Spouses   Bunsay,  Spouses Salvador also received checks from DPWH representing  the zonal value of the expropriated  portion and the cost of the improvements built thereon. However,  in addition  to the sum received  by Spouses  Salvador,  the RTC also directed DPWH to pay consequential  damages "equivalent  to the value of  the  [CGT]  and  other  taxes  necessary  for  the  transfer  of  the  subject property in the Republic's name."^[23]

Hence, DPWH assailed the propriety of the award of consequential damages  therein,  as it does  here. Resolving  the  issue, the  Court  held, as follows:

We likewise rule that  the RTC  committed a serious error when it directed the Republic to pay respondents consequential damages equivalent  to  the   value   of  the   capital  gains   tax   and   other   taxes necessary for the transfer of the subject property.

"Just  compensation  [is defined as] the full and fair equivalent  of the property  sought  to  be expropriated. x x x The  measure is not  the taker's gain  but  the  owner's loss. [The compensation,  to be just,] must be fair not only to the owner but also to the taker."

In order to determine just compensation, the trial court should first ascertain the market value of the property by considering the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape, location, and the tax declarations  thereon. If as a result  of the expropriation, the  remaining lot suffers from  an impairment or decrease in value,  consequential damages may  be awarded by the trial  court, provided that  the consequential benefits  which  may arise  from  the expropriation do not exceed said  damages suffered by the owner  of the property.

While it is true that "the determination of the amount of just compensation   is  within  the  court's   discretion,  it  should  not  be  done arbitrarily or capriciously. [Rather,] it must [always] be based on all established  rules, upon correct legal principles and competent  evidence." The court cannot base its judgment on mere speculations and surmises.

In the present case, the RTC deemed it "fair and just that x x x whatever  is the value of the [CGT] and all other taxes necessary for the transfer of the subject property to the [Republic] are but consequential damages that should be paid by the latter." x x x

xxxx

This is clearly an error. It is settled  that  the transfer of property through expropriation proceedings is a sale  or  exchange within  the meaning  of  Sections   24(D)  and   56(A)(3)   of  the   National Internal Revenue Code,  and   profit   from   the  transaction  constitutes capital gain.  Since   [CGT]   is  a  tax  on  passive  income,   it  is  the  seller,  or respondents in this case, who are liable to shoulder the tax.

In fact, the Bureau of Internal Revenue (BIR), in BIR Ruling No. 476-2013 dated December 18, 2013, has constituted the DPWH as a withholding agent tasked to withhold the 6% final withholding tax in the expropriation of real property for infrastructure projects. Thus, as far as the  government is concerned, the [CGT] in expropriation proceedings remains a liability of the seller, as it is a tax on the seller's gain from the sale of real property.

Besides,  as  previously explained, consequential  damages  are only   awarded  if  as  a  result   of  the  expropriation,  the   remaining property of  the  owner   suffers from  an  impairment or  decrease  in value. In this case, no evidence was submitted to prove any impairment or decrease in value of the subject property as a result of the expropriation. More significantly, given that the payment of [CGT] on the transfer of the subject property has no effect on the increase or decrease in value of the remaining property, it can hardly be considered as consequential damages that  may  be  awarded  to  respondents.^[24] (Emphasis  and  underscoring supplied while those in the original omitted)

The Court's ruling  in Spouses Salvador is clear -CGT may not  be awarded  in  the  form  of  consequential damages  since  the  term  assumes  a fixed  definition  in the context  of expropriation proceedings; it is limited  to the impairment or decrease  in value  of the portion  which  remains  with the affected owner after expropriation.

It  must  be  clarified,   however,   that  the  ruling  in  Spouses  Salvador should  not be interpreted to preclude  the courts  from  considering the value of   CGT   and   other   transfer   taxes   in   determining  the   amount   of   just compensation to be awarded  to the affected owner.

To recall, Section 5 of Republic Act No. (RA) 8974^[25] sets forth the standards  in the determination of just compensation. It states:

SEC. 5. Standards  for  the Assessment  of the  Value  of the  Land Subject  of Expropriation  Proceedings  or Negotiated  Sale. - In order to facilitate the determination of just compensation, the court may consider, among other well-established factors, the following relevant standards:

(a) The classification and use for which the property is suited;

(b) The developmental  costs for improving the land;

(c) The value declared by the owners;

(d) The current selling price of similar lands  in the vicinity;

(e) The  reasonable   disturbance   compensation   for  the  removal and/or demolition of certain improvements  on the land and for the value of improvements thereon;

(f)  The size, shape or location, tax declaration and zonal valuation of the land;

(g) The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and

(h) Such  facts  and  events  as  to  enable the  affected   property owners    to   have   sufficient  funds  to   acquire  similarly­ situated lands  of approximate areas as those  required from them     by    the    government,   and    thereby   rehabilitate themselves as early  as possible. (Emphasis supplied)

CGT,  being  a tax  on  passive  income,  is  imposed  by  the  National Internal  Revenue  Code  on  the  seller  as  a  consequence  of  the  latter's presumed  income  from  the  sale  or  exchange  of  real  property.  Notably however,  the  transfer  of  real  property  by way  of  expropriation  is not an ordinary sale contemplated under Article 1458^[26] of the Civil Code. Rather, it is  akin  to  a "forced  sale"  or  one  which  arises  not  from  the  consensual agreement of the vendor and vendee, but by compulsion  of law.^[27]  Unlike in an ordinary sale wherein the vendor sets and agrees on the selling price, the compensation  paid  to  the  affected  owner  in  an  expropriation  proceeding comes in the form of just compensation determined by the court.

In turn, just compensation is defined as the fair and full equivalent of the loss incurred by the affected owner^[28]  More specifically:

x x x [J]ust compensation in expropriation  cases is defined "as the full and fair equivalent of the property taken from its owner by the expropriator. The Court repeatedly stressed that the true measure is not the taker's  gain but the owner's loss. The word  'just' is used to modi1fy the meaning  of  the  word   'compensation' to  convey  the  idea  that   the equivalent to  be  given  for  the  property to  be  taken   shall  be  real, substantial, full and  ample."^[29] (Emphasis supplied)

To recall, Section 6, Rule 67 of the Rules of Court mandates that "in no case shall x x x the owner be deprived of the actual value of his property so taken."^[30]  Since just compensation  requires that real, substantial,  full and ample equivalent be given for the property taken, the loss incurred by the affected  owner  necessarily  includes  all  incidental  costs  to  facilitate  the transfer of the expropriated property to the expropriating authority, including the CGT, other taxes and fees due on the forced sale. These costs must be taken into consideration  in determining  just compensation  in the same way these costs are factored  into the selling  price of real property  in an arm's length  transaction.   Notably,  the  value  of  the  expropriated   property,  as declared by the affected owner, and the current selling price of similar lands are factors listed under Section 5 of RA 8974.

Here,  Spouses  Bunsay  received,  as  just  compensation,  an  amount equal  to  the  sum  of  the  zonal  value  of  the  Disputed  Property  and  the replacement cost of the improvements  built thereon. Evidently, the value of CGT and transfer taxes due on the transfer of the Disputed Property was not factored into the amount paid to Spouses Bunsay, but instead, separately awarded as consequential damages.

While the award of consequential  damages equivalent to the value of CGT and transfer taxes must be struck down for being erroneous, the Court deems it just and equitable to direct the Republic to shoulder such taxes to preserve the compensation  awarded to Spouses Bunsay as a consequence of the expropriation. To stress, compensation, to be just, must be of such value as to fully rehabilitate  the affected owner; it must be sufficient to make the affected owner whole.

WHEREFORE,  premises  considered,  the  Petition  is  GRANTED. The  Order/Resolution  and  Order  respectively  dated  August  23,  2012  and January 10, 2013 rendered by the Regional Trial Court of Valenzuela City, Branch 270, in Civil Case No. 188-V-11 are MODIFIED,  in that the award of consequential  damages, equivalent  to the value of capital gains tax and other transfer taxes, is DELETED.

Nevertheless,  the petitioner  is DIRECTED to shoulder  such capital gains tax and other transfer taxes as part of the just compensation due the respondents.

SO ORDERED.

Peralta, C.J., (Chairperson), Caguioa, J. Reyes, Jr., Lazaro-Javier, Lopez, JJ., concur.

---

^[1] Rollo, pp. 9-19.

^[2] Id. at 20-23. Penned by Presiding Judge Evangeline M. Francisco.

^[3] Id. at 24-25.

^[4] Executive Order No. 292, ADMTNISTRATIVE CODE OF 1987,  Book  IV, Title V, Chapter I, Sec. 1.

^[5] Rollo, p. 10.

^[6] Id. at 34-49.

^[7] Id. at 11.

^[8] ld. at 20.

^[9] Id. 11, 20.

^[10]  Id. at 11.

^[11] Id.

^[12] ld. at 22.

^[13] See Expropriation  Complaint,  id. at 36.

^[14] See Motion for Partial Reconsideration  (Re: Order/Resolution  dated August 23, 2012), id. at 26-33.

^[15] Id. at 24.

^[16] Id.

^[17] Id. at 120-130.

^[18] Id. at 144-153.

^[19] See Comment, id. at 124.

^[20] 612 Phil. 965 (2009).

^[21] Id. at 980, 982.

^[22] 810 Phil. 742 (2017).

^[23]  Id. at 745.

^[24] Id.at746-749.

^[25] AN  ACT  TO FACILITATE THE ACQUISITION OF RIGHT-OF-WAY,  SITE OR LOCATION FOR NATIONAL GOVERNMENT INFRASTRUCTURE  PROJECTS AND FOR OTHER PURPOSES, November 7, 2000.

^[26] Article 1458 states:

ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

xxxx

^[27] See Hospicio de San Jose De Barili, Cebu City v. Department of Agrarian  Reform, 507 Phil. 585, 597- 598 (2005) in reference to expropriation of lands under agrarian reform.

^[28] See Evergreen Manufacturing Corp. v. Republic, 817 Phil. 1048, 1058 (2017).

^[29] Id. at 1058-1059.

^[30] Underscoring supplied.