Property Acquisition
Arellano University purchased the 805-square-meter Menlo property (Lot 1, Pcs-00-012377).
Note: The property was already being used as Menlo Street at this time, but no annotation existed on the title. However, 1978 was set as the earliest time of taking, based on the property's first appearance in Pasay City's land tax records with a general assessment value of P200.00 per square meter. In 2012, Arellano University initiated contact and negotiations with the Pasay LGU to seek compensation for the property, approximately 47 years after its acquisition and 34 years after the assumed taking.
Complaint for Inverse Condemnation Filed
Arellano University filed a formal complaint before the Regional Trial Court (RTC) of Pasay City, alleging that the Pasay LGU took its private property without initiating expropriation proceedings or paying just compensation.
Commissioners' Appraisal Report Submitted
The RTC-appointed Board of Commissioners (composed of Pasay LGU officials) submitted a report:
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Valuation: Pegged the Fair Market Value at P2,060.00 per square meter.
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Basis: This was calculated by taking the 1978 base value (P200.00/sq.m.) and applying a fixed 6% interest rate per annum until 2017.
RTC Order Issued (Branch 108)
The RTC fixed the just compensation based on the 1978 base value of P200.00/sq.m. (totaling P161,000.00) and directed the Pasay LGU to pay:
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Interest: 12% legal interest per annum from 1978 until 2018 (characterizing it as forbearance of money).
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Indemnity: 6% per annum interest on the total award as indemnity for damages for the delay in payment.
Court of Appeals (CA) Decision
The CA partially granted the appeal and issued a key ruling:
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Valuation: The case was REMANDED to the RTC for re-determination of just compensation, criticizing the RTC for relying solely on the 1978 tax assessment without considering a totality of factors (like BIR zonal valuation, market prices, etc.).
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Interest Rate Modification: The rate on the principal compensation was adjusted to follow the prevailing Bangko Sentral ng Pilipinas (BSP) rates: 12% per annum from 1978 until June 30, 2013, and 6% per annum from July 1, 2013, until full payment.
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Damages: Affirmed the award of indemnity, exemplary damages, and attorney's fees, leaving the amounts for the RTC to determine on remand.
Supreme Court Decision Promulgated
The Supreme Court PARTIALLY GRANTED the petition, affirming the necessity of re-valuation but modifying the award of damages and interest:
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Valuation: Affirmed the CA's REMAND to the RTC for proper determination of just compensation using the totality of circumstances approach, setting the time of taking at 1978.
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Exemplary Damages: DELETED the award of exemplary damages, finding the Pasay LGU's negligence was tempered by Arellano's corresponding delay of almost 47 years in filing the claim.
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Indemnity Interest: Affirmed the 6% indemnity as temperate damages (for the fruits of the land Arellano was deprived of).
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Final Interest Modification: Affirmed the CA's variable interest rate structure (BSP rate changes) on the principal and further ruled that the compensation amount should also earn 6% interest per annum from the date of finality of the Decision until full payment.
City Government of Pasay v. Arellano University
G.R. No. 260038, May 7, 2025
THIRD DIVISION
DOCTRINE:
The fair market value used to determine just compensation for a property taken by the government without formal expropriation must be reckoned at the time of the actual taking or dedication to public use (inverse condemnation), and not at the time the registered owner files a complaint to recover compensation, plus legal interest computed from the time of taking until full payment.
FACTS:
The dispute originated from the City Government of Pasay (Pasay LGU)’s unauthorized use of an 805-square-meter parcel of land (the Menlo property) owned by Arellano University. The property, covered by a Torrens title (TCT No. 13838), was converted into a public thoroughfare, now known as Menlo Street, and had been used as such for several decades.
In 2017, Arellano filed a complaint against Pasay LGU for the payment of just compensation. The Pasay LGU attempted to avoid payment by raising the defenses of acquisitive prescription and laches, asserting that the property had either been donated or impliedly dedicated to public use and that the government had acquired ownership through long possession.
The RTC ruled in favor of Arellano, ordering payment based on the 2018 market value. The Court of Appeals (CA) affirmed the LGU’s liability but modified the reckoning date for just compensation to 1999, which it found was the actual time the road was opened and dedicated for public use, setting the value at ₱25,000.00 per square meter, which Pasay LGU challenged.
ISSUE(S):
Did the Pasay LGU acquire the Menlo property by acquisitive prescription or laches, thereby exempting it from paying just compensation?
Should the just compensation for the Menlo property be reckoned from 1999, the time the property was dedicated to public use?
RULING:
1. Did the Pasay LGU acquire the Menlo property by acquisitive prescription or laches, thereby exempting it from paying just compensation?
NO. The Pasay LGU’s claim of ownership through acquisitive prescription or the defense of laches must fail against the Torrens title held by Arellano. The Pasay LGU’s claim that it has acquired ownership over the subject property by prescription or laches fails in the face of the Torrens system of registration. The legal basis is Presidential Decree (P.D.) No. 1529, which provides the indefeasibility of title:
“Section 47 of P.D. No. 1529 provides that ‘[n]o title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession.’ Thus, the ownership of the registered owner is indefeasible, and no amount of adverse possession or lapse of time can result in the transfer of ownership to the local government unit.”
2. Should the just compensation for the Menlo property be reckoned from 1999, the time the property was dedicated to public use?
YES. Just compensation, defined in Article III, Section 9 of the 1987 Constitution, must be determined based on the fair market value at the time of the taking, not at the time the case was filed. The Court differentiated formal expropriation from unauthorized taking:
“The general rule in determining just compensation is that the fair market value is reckoned at the time of the taking. This is in consonance with the constitutional mandate that private property shall not be taken for public use without just compensation [Article III, Section 9 of the 1987 Constitution]. The Court holds that the CA was correct in reckoning the just compensation from 1999. In this case, the CA made a factual finding that the property was dedicated to public use in 1999, and not in 2018 when the complaint was filed. Thus, the just compensation must be computed at the time of the taking, and not at the time the complaint was filed. We affirm the fair market value of the subject property in the amount of ₱25,000.00 per square meter, as determined by the CA, is the just compensation due to Arellano. The total amount shall be subject to legal interest at the rate of six percent (6%) per annum from the time of the taking in 1999 until full payment.”