Interest: To Pay or Not To Pay

Hello my friends! It’s a great day to familiarize ourselves with recent Supreme Court decisions regarding real property. For our this issue, I would like to introduce to you to a 2018 case decided by the Supreme Court regarding the sale of a real property, wherein the buyer is not a private individual or corporation but the government. Ladies and gentlemen, welcome back to another issue of the Lawyer’s Corner brought to by Filipino Homes Magazine!

Here is our scenario:

X is a duly incorporated corporation composed of the heirs of A. It was the registered owner of a parcel of land with an area of 1,836 square meters covered under Transfer Certificate of Title (TCT) No. T-7777.

Sometime in 2005, after a series of negotiations, X and the Republic of the Philippines, through the Department of Public Works and Highways (DPWH), executed a Deed of Absolute Sale where it was agreed that X would sell the above-mentioned property to the Republic in consideration of P500,000.00. The property was eventually registered in the Republic’s name under TCT No. T-8888, after X’s receipt of the full consideration. The said parcel of land forms part of Y Avenue, a national road.

In late 2006, X filed a Complaint before the Regional Trial Court. It alleged that the subject parcel of land was taken by the DPWH sometime in 1957; the value of P500,000.00 as just compensation stated in the Deed of Absolute Sale, was based on the value of the property in 1957; it made verbal and written demands to the Republic for the payment of interest from 1957; and it had a right to receive interest because the DPWH had not paid just compensation when it occupied the property in 1957.

Question: Is X entitled to the payment of interest from 1957?

Answer: No. X is not entitled to the payment of interest from 1957. 

In the case of Republic Of The Philippines, represented by the Secretary Of The Department Of Public Works And Highways (DPWH) v. Jose Gamir-Consuelo Diaz Heirs Association, Inc. (G.R. No. 218732, November 12, 2018), the Supreme Court held that:

“In a long line of cases where the Court awarded legal interest, there was either an absence of concurrence between the landowner and the government with regards to the value of the property taken or the state had commenced expropriation proceedings.

In the cases of Reyes v. National Housing Authority [443 Phil. 603 (2003)], Republic v. Court of Appeals [433 Phil. 106 (2002)], and Philippine Ports Authority v. Rosales-Bondoc [557 Phil. 737 (2007)], the government, through different bodies and agencies, instituted expropriation proceedings to acquire private property for public use. Meanwhile, in Land Bank of the Philippines v. Imperial [544 Phil. 378 (2007)], the landowner filed a complaint for determination and payment of just compensation after the Department of Agrarian Reform (DAR) distributed its properties to farmer-beneficiaries. On the other hand, in Land Bank of the Philippines v. Wycoco [464 Phil. 83 (2004)], the landowner initially offered to sell its property to DAR but the matter was referred to the DAR Adjudication Board after the former disagreed with the valuation of its property.

Common in the above-cited cases is the fact that either there was never any negotiation between the government and the private landowner, or the parties did not reach any agreement as to the consideration for the property taken. Unlike in the present case, petitioner and respondent voluntarily and freely executed and entered into a deed of sale covering the latter's property. The said document purports to represent the will of the parties concerning the transaction after a series of negotiations. It must be remembered that the contract is the law between the parties and they are bound by its stipulations [Spouses Villanueva v. Court of Appeals, 671 Phil. 467, 479 (2011)]. The CA erred in relying on the pronouncements in Apo because in the said case, there was no consensual contract between the parties as the landowner disagreed with the valuation done by the DAR on its property.

In sum, the award of legal interest in cases where the government acquires private property through voluntary sale is not a matter of law. Unlike in cases where the state exercises its power of eminent domain or a party initiates expropriation proceedings and other similar actions, in negotiated sale, there is an existing contract that governs the relations of the parties and determines their respective rights and obligations. In turn, these contractual stipulations should be complied with in good faith, unless they are contrary to law, morals, good customs, public order or public policies [Moria v. Belmonte, 678 Phil. 102, 117 (2011), citing Roxas v. De Zuzuarregui, Jr., 516 Phil. 605, 622-623 (2006)]. Hence, the laws relating to contracts should govern in case of controversy in their application.

In its complaint, respondent admits that upon negotiation, it agreed to sell its property to petitioner for the amount stated in the Deed of Absolute Sale. However, it notes that prior to the execution of the said deed, it had demanded for the payment of interest to be computed from 1957, but petitioner rejected it. It is worth highlighting that the Deed of Absolute Sale between petitioner and respondent does not contain any provision or stipulation for the payment of interest. Neither did respondent make any reservation for it to claim interest.”

In other words, since the sale was voluntary and was not executed exercising the power of eminent domain by the State and there was no stipulation on the payment of interest in the Deed of Sale, X, cannot demand payment of interest from 1957.

I wonder under what cases can a seller demand payment of interest from the government? I guess that will be our next topic in our next issue. 

God bless us all!