Notes on Eminent Domain and Just Compensation

Prof. Augusto B. Agosto
Cebu City, Philippines

The Philippine Constitution says that private property shall not be taken for public use without just compensation. This provision referred to as eminent domain or expropriation has resulted in a plethora of case law and academic literatures that help in defining what constitute public use, and how to determine just compensation.

Fr. Joaquin Bernas, former Constitutional Commissioner, in his works discusses eminent domain in a comprehensive manner. He expounded the definition of eminent domain to include not only the legal aspect but also in historical and political context, and draw practical application in citing various Supreme Court rulings and literatures.

He clearly demonstrate the distinction of inherent power of the State and the delegated power. The inherent power being unlimited power with limitations under the Bill of Rights. The eminent domain in the hands of legislature and in different government agencies, local government and public utilities. However the latter are only a delegated power. The distinction is important and has legal consequences both with respect to the scope of power and judicial review and the exercise of the power.

Under the Philippine Constitution, Article III, Section 9, “Private property shall not be taken for public use without just compensation.” In line with this, to tilth balance with the Bill of Rights provision of the basic law of the land, there are two constitutional limitations on the power of eminent domain: (1) the purpose of the taking must be public use, and (2) just compensation must be given to the private owner.

Public use means its usefulness to the public, utility or advantage, or what is productive of general benefit. This will ensure that any appropriation of private property by the state should be for public use. In the historical perspective, public use should be mean of a constant growth and not static. As society advances, individual demands increases and new demand use of the resources be devoted. In determining the genuinely of necessity for the exercise of eminent domain is a judiciable question, and the power exercised by the legislature is essentially a political question.

The Constitution reiterates in Section 4, Article XIII of the 1987 the importance of just compensation. It emphasizes that the redistribution of agricultural lands shall be “subject to the payment of just compensation.” This is to balance between the Bill of Rights and the purpose of agrarian reform. The duty of the court is to protect the weak and the underprivileged, but not to deny justice to the landowner.

Just compensation on the other hand is defined as a just and complete equivalent of the loss which the owner of the expropriated has to suffer by reason of expropriation. In other words, compensation is “just“ if the owner receives from his property a sum which is equivalent to the market value of the property. Market value defined as the price fixed by the buyer and seller in the open market in the usual and ordinary course of legal trade and competition.

In the Bill of Rights, just compensation is defined as the fair or market value of the property as between the one who receives, and the other one who desires to sell. Just compensation also applies in agrarian reform. In fact, the Comprehensive Agrarian Reform Law or R.A. No. 6657 requires that just compensation should be the full and fair equivalent of the property taken from its owner by the expropriator, the equivalent being real, substantial and full.

Furthermore, the determination of just compensation in expropriation cases is a function addressed to the discretion of the courts owing to the constitutional mandate that no private property shall be taken for public use without payment of just compensation. As such, legislative enactments, as well as executive issuances, fixing or providing for the method of computing just compensation are tantamount to impermissible encroachment on judicial prerogatives. As such, they are not binding on courts and are treated as mere guidelines in ascertaining the amount of just compensation. Even the enumeration of the standards for the assessment of the value of the land for purposes of expropriation under Section 5 of Republic Act No. 8974 reflects the non-exclusive, permissive and discretionary character thereof.

Under Sec. 4, Rule 67 the basic rule that the value of the just compensation is to be determined as of the date of the taking of the property or the filing of the complaint, whichever came first. The case of National Transmission Corporation v. Oroville Development Corporation, settles that just compensation should be reckoned from the date of actual taking when such action preceded the filing of the complaint for expropriation.

The affected landowner upon the implementation of the condemnation, will file in court of their claim for just compensation. However, if the filing will be delayed, the legal payment will be applied from the time of taking. The effect of the former will give the owner an undue advantages arising from the new development or land use of the property expropriated. Example the common usage of the expropriated property is road widening where the property in the vicinity will increase due to the accessibility and possible development of the area. If the new market value will be the reckoning time, the land owner will benefit through appreciation of land value.

Also, the entry into the property prior to full payment, Section 10 of R.A. 7160 requires a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated. As a rule, there is a difference if the expropriation involve infrastructure projects, it’s not only deposit rather than the full payment of the value of property. The form of compensation differ either in cash and installments. Based on the Rules of Court, Rule 67, Section 10 it should be fair market value in cash, however in Agricultural Land Reform Code (R.A.3844) the condemned could be paid 10% in cash and the remaining will be paid in bonds issued by Landbank. Furthermore, Presidential Decree No.27 calls for payment in fifteen equal annual installments guaranteed with shares of stocks in government owned or controlled corporations.

Expropriation for resale to the landless

The significance of expropriation of large landed estates may be gathered from the role land tenure has held in the political and social history of the country. It has been told that the earlier revolt against Spain were connected to the abuses of the landowners against its peasants. During the American period, the leadership of the country have staunchly rallied the call for the confiscation of friar lands and big landlords. The demand for equitable distribution of lands is the basic demands of the peasantry and even the establishment of the armed uprising in the countryside was due to this unresolved problem.

The public use has been synonymous with public welfare under the Guido doctrine which emphasizes the importance of “area test” that embraces a town or city and should benefit a large number of people. This enlarged concept of “public use” when applied to expropriation of land required a constant factor that the land be immense in size. However, during the Constitutional Commission of 1986 the Guido-Baylosis rule was taken for granted and the framers of the constitution favor that the expropriation for resale for the purpose of alleviating the condition of the landless farmers is social justice.

It is important to note the judicial appointment of three commissioners to inspect the premises and assess the compensation for the property owner, and report to the court of their findings. The report should be accepted and the judge render will judgment in accordance with the recommendations. The court has the authority to change or modify the report by increasing or decreasing the amount of the award. This will be based on the facts of the case which justifies of such change or modification, and in line with the judicial review.

Expropriation of municipal property

In the case of NAWASA v. City of Baguio, it is clear that there is a need to clarify the distinction between patrimonial property of a municipal corporation and property which is for public use. In the case of Province of Zamboanga del Norte v. City of Zamboanga noted that the principle in distinguishing the two is simple, if the property is owned by the municipality in its public and governmental capacity, the property is public and Congress has absolute control over it. However, if the property is owned in its private or proprietary capacity then it is patrimonial and Congress has no absolute control. Again, in the Civil Code the classification of the two can be found which says:

The Local Government Code states that the property of provinces, cities, and municipalities is divided into property for public use and patrimonial property. In Art.424 clearly defines what property is for public use. In the provinces, cities and municipalities, consist of the provincial roads, city streets, municipal streets, squares, fountains, public waters, promenades and public works for public service paid for by said provinces, cities or municipalities. All other property possessed by any of them is patrimonial, without prejudice to the provisions of special laws.

Expropriation by municipal government

The power of eminent domain has been given to local governments by the Local Government Code. However it is a limited expropriation powers. It should follow the rules stated in the Local Government Code (RA 7160) such as it must be exercised for public use and with just compensation and after a valid offer. In addition, it must be done on the strength of a legislative act of the local government or through an ordinance not merely on the strength of a resolution.

The Constitution and the Local Government Code on the power of eminent domain

Eminent domain is the power of the state to take private property for public use. It is an inherent power of the State as it is a power necessary for the State’s existence. As an inherent power, it is unlimited power. However, limitation can be found in the Bill of Rights, Article III, Section 9 which states that no private property shall be taken for public use without just compensation.

As discussed intuitively by Fr. Bernas, the two essential limitations to the power of eminent domain are (1) the purpose of taking must be for public use and (2) just compensation must be given to the owner of the private property. It emphasises that the compensation should be “just” as to safeguard and ensure the balance between property not to be taken for public use at expense of private interest. In short, the State should balance the injury that the taking of property will cause through compensation for what is taken.

Constitutionally, “just compensation” is the sum equivalent to the market value of the property, broadly described as the price fixed by the seller in open market in the usual and ordinary course of legal action and competition, or the fair value of the property as between the one who receives and the one who desires to sell, it being fixed at the time of the actual taking by the government. Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. It has been repeatedly stressed by this Court that the true measure is not the taker’s gain but the owner’s loss. The word “just” is used to modify 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.

Under Article XII, Section 18. The State may, in the interest of national welfare or defense, establish and operate vital industries and, upon payment of just compensation, transfer to public ownership utilities and other private enterprises to be operated by the government.

Furthermore, Article XIII, Section 4 said that the redistribution of agricultural lands shall be “subject to the payment of just compensation.” With just compensation seen as equivalent to the market value of the property.

RA 10752 or “The Right-Of-Way Act” and its IRR

There are three important points which relates to valuation.

The scope of the law is broad and covers almost all government agencies.
The mode of acquisition such as negotiated sale, donation, and expropriation has different compensation mechanism. Negotiated is for market value, meanwhile expropriation uses the zonal valuation and donation thru barter or exchange.
The selection of appraiser is limited due to provision that limits the qualified appraiser other than the PRC license requirement.

Under Sec. 3 of the Right-of-Way Act, the term “national government projects” shall refer to all national government infrastructure projects and its public service facilities, engineering works and service contracts, including projects undertaken by government-owned and -controlled corporations, all projects covered by Republic Act No. 6957, as amended by Republic Act No. 7718, otherwise known as the “Build-Operate-and-Transfer Law”, and other related and necessary activities, such as site acquisition, supply or installation of equipment and materials, implementation, construction, completion, operation, maintenance, improvement, repair and rehabilitation, regardless of the source of funding.

We can notice, that this law covers not only the infrastructure projects, but also projects of other government agencies, government owned and controlled corporations that are doing related and necessary activities such as site acquisition, supply and installation of equipment and materials etc. This is broad and will affect those practitioners that are regularly engaged in government projects.

Under Sec. 4 discusses the modes of acquiring real property as right-of-way site or location for any national government infrastructure project through donation, negotiated sale, expropriation, or any other mode of acquisition as provided by law. The implementing agency may utilize donation or similar mode of acquisition if the landowner is a government-owned or government-controlled corporation.

Furthermore, we can notice the different standard of land compensation pertaining to various mode of acquisition. In negotiated sale, the relevant standards in the determination of market value of the property includes the following:

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

(b) The development cost for improving the land,

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

(e) The reasonable disturbance compensation for the removal and 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.

However, in the expropriation proceeding, the requirement are the following: (1) One hundred percent (100%) of the value of the land based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR) issued not more than three (3) years prior to the filing of the expropriation complaint subject to subparagraph (c) of this section; (2) The replacement cost at current market value of the improvements and structures as determined by the implementing agency; government financial institution with adequate experience in property appraisal; and independent property appraiser accredited by the BSP. (3) The current market value of crops and trees located within the property as determined by a government financial institution or an independent property appraiser to be selected as indicated in subparagraph (a) of Section 5 hereof.

In the Implementing Rules and Regulations of RA 10752, the rule applied is stricter in the selection of an appraiser to do the job of valuation. It includes the determination of the appropriate price offer for the acquisition of ROW through negotiated sale. In line with the this, the IA may engage the services of either of the following:

A government financial institution (GFI) with adequate experience in property appraisal to be selected by the IA through a competitive process; or
An independent property appraiser (IPA) accredited by:(1) the Bangko Sentral ng Pilipinas (BSP) or(2) a professional association of appraisers recognized by BSP.

However, the BSP accreditation requirement is a roadblock for every appraiser to engage with government agencies. Based on the list of accreditation requirement provided by the BSP, the required capitalisation amount of the Independent Property Appraiser is Php4 million. This is a steep requirement and seldom for an Independent Appraiser to have an equivalent amount that can be used in complying with the requirement for accreditation.

LGUs on exercise of eminent domain

Under the Local Government Code, Section 19 on Eminent Domain states that “a local government unit may, through its chief executive and acting pursuant to an ordinance, exercise the power of eminent domain for public use, or purpose or welfare for the benefit of the poor and the landless, upon payment of just compensation, pursuant to the provisions of the Constitution and pertinent laws: Provided, however, That the power of eminent domain may not be exercised unless a valid and definite offer has been previously made to the owner, and such offer was not accepted: Provided, further, That the local government unit may immediately take possession of the property upon the filing of the expropriation proceedings and upon making a deposit with the proper court of at least fifteen percent (15%) of the fair market value of the property based on the current tax declaration of the property to be expropriated: Provided, finally, That, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property”.

It is clear in the foregoing that first there are rules to follow in exercising the power of eminent domain, these are the following: (1) “An ordinance is enacted by the local legislative council authorizing the local chief executive, in behalf of the LGU. (2) “The power of eminent domain is exercised for public use, purpose or welfare, or for the benefit of the poor and the landless.”; (3) “There is payment of just compensation, and (4) “A valid and definite offer has been previously made to the owner of the property sought to be expropriated, but said offer was not accepted.” Thus, a local government may not expropriate on the strength merely of a sanggunian resolution alone.

The second important point is the necessity for the LGU, to file an expropriation proceeding to immediately take possession of the property, upon making a deposit with the proper court, of at least 15 percent of the fair market value of the property.

The valid exercise of the Power of Eminent Domain by LGUs require an ordinance authorizing the local executive to subject the property to eminent domain or expropriation. It should be exercised for public use, purpose or welfare for the benefit of the poor and the landless; payment of just compensation and a valid and definite offer to buy, the property must have been made to the owner and the latter offer was not accepted.

The following shall be considered among others as public use, purpose or welfare:

Socialized housing;
Construction or extension of roads, streets, sidewalks, viaducts, bridges, ferries, levees, wharves, or piers;
Construction or improvement of public buildings maintained and operated by the government for public use such as nurseries, health centers, or hospitals, buildings for research, breeding, or dispersal centers for animals;
Establishment of parks, playgrounds, or plazas;
Establishment of public market places;
Construction of artesian wells or water supply systems;
Establishment of cemeteries or crematories;
Establishment of drainage systems, cesspools, or sewerage systems;
Construction of irrigation canals or dams;
Establishment of nurseries, health centers, or hospitals; and
Establishment of abattoirs.
Building of research, breeding, or dispersal centers for animals.

Under the Local Government Code, there are two modes of acquisition of real property, the acquisition through Negotiated Sale and if it fails through expropriation. In appraising the market value of the private property that is subject to expropriation must consider, among others, the well-established factors and the following relevant standards:

The classification and use for which the property is suited;
The developmental costs for improving the land;
The value declared by the owners;
The current selling price of similar lands in the vicinity;
The reasonable disturbance compensation for the removal and/or demolition of certain improvements on the land and for the value of improvements thereon;
The size, shape or location, Field Appraisal and Assessment Sheet, Tax Declaration and zonal valuation of the land;
The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and
Such facts and events so as to enable the affected property owners to have sufficient funds to acquire similarly-situated lands of approximate areas as those acquired from them by the government, and thereby rehabilitate themselves as early as possible.

Compulsory Acquisition of Government Agencies

Compulsory acquisition is the power of government to acquire private rights in land without the willing consent of its owner or occupant in order to benefit society. This power is often necessary for social and economic development and the protection of the natural environment.

Republic Act No. 10752 entitled “An Act Facilitating the Acquisition of Right- of-Way, Site or Location for National Government Infrastructure Projects” or “The Right-of-Way Act” was enacted on 07 March 2016. Right-of-Way or ROW means a part or the entirety of a property, site or location, with defined physical boundaries, used or required by a national government project.

Notwithstanding the implementing rules and regulations on the engagement/ procurement of independent property appraisers (IPA), the importance of the qualifications of the IPA, should be consistent with the IVS Framework and the valuations consistent with IVS General Standards.

The requirement on the engagement of the Independent property appraisers (IPA) is not consistent with the Republic Act 9646. Such requirements are the Bangko Sentral ng Pilipinas (BSP) Accreditation, and the registry in Philgeps, tax clearance and many more. The BSP accreditation however outlined the setting up of a corporation or single proprietorship with a capital of at least P4,000,000. This amount could not be provided by a single professional valuer. Thus it favors the big appraisal companies.

The different modes of ROW acquisition are the donation; negotiated sale and expropriation. However, there are also other modes of acquisition such as the acquisition of properties under Commonwealth Act 141; exchange or barter; easement of right of way; acquisition of subsurface right of way and other modes authorized by law.

As provided in Section 5 of the Act, the Implementing Agency may acquire through negotiated sale the required ROW project, by offering to the property owner as compensation price, the sum of the:

current market value of the land;
replacement cost of structures and improvements therein; and
current market value of crops and trees therein.

With regard to Section 6.1 b of the Implementing Rules and Regulations of the Act, the Replacement Cost of a structure or improvement affected by ROW shall be based on the current market prices of materials, equipment, labor, contractors profit and overhead and all other attendant costs associated with the acquisition and installation of a similar asset in place of the affected asset.

As defined in Section 3 of the Act, refers to all national government infrastructure projects and their public service facilities, engineering works and service contracts. including projects undertaken by government-owned and controlled corporation, all projects covered by Republic Act No. 6957, as amended by RA No. 7718, otherwise known as the “Build-Operate-and-Transfer-Law” and other related laws including those involving private sector participation and all necessary activities or projects that are intended for public use or purpose, such as site acquisition, supply and/or installation of equipment and materials, implementation, construction, completion, operation, maintenance, improvement, repair and rehabilitation, regardless of the source of funding. These projects shall include, but not limited to the following:

Highways, including expressways, roads, bridges, interchanges, overpasses, tunnels, viaducts and related facilities;
Railways and mass transit facilities;
Port infrastructure, like piers, wharves, quays, storage handling and ferry services;
Airports and air navigation facilities;
Power generation, transmission and distribution facilities;
Radio/television broadcasting and telecommunications infrastructure;
Information technology infrastructure:
Irrigation, flood control and drainage systems;
Water and debris retention structures and dams;
Water supply, sanitation, sewerage and waste management facilities;
Land reclamation, dredging and development;
Industrial and tourism estates;
Government school buildings, hospitals, clinics and other buildings and housing projects;
Public markets and slaughterhouses; and
Other similar or related Infrastructure works and services of the national government.

Under A.O. No. 50, as amended by R. A. No. 8974, provides that the zonal value shall be the basis of the offer to acquire property for public purpose less the additional 10% increase in the existing zonal value. Setting the acquisition to zonal value is a departure from the standards set by International Organizations. Also, based on the list of relevant standards in appraising private property that is subject for expropriation, zonal value is only one of the standards that need to consider. However, in the final analysis, the amount to be paid for the expropriated property shall be determined by the proper court, based on the fair market value at the time of the taking of the property. #

The problem of eminent domain’s necessity and cost is not unique to the Philippines, and there are lessons to be learned from historical application and jurisdictions across the world. There is a need to study eminent domain in the economics context and explore the possibilities of providing reforms. This reform would create better incentives for potential condemners, increase transparency in the process, and ultimately make eminent domain a more humane system.

Share this: