CITY OF MANILA, petitioner, vs .

ALEGAR CORPORATION, TEROCEL

FACTS

The City Council of Manila passed an ordinance that authorized the City Mayor to acquire certain lots
belonging to respondents Alegar Corporation, Terocel Realty Corporation, and Filomena Vda. De
Legarda, for use in the socialized housing project of petitioner City. The City offered to buy the lots at
P1,500.00 per square meter (sqm) but the owners rejected this as too low with the result that the City
filed a complaint for expropriation against them before the RTC of Manila.

In its complaint, the City alleged that it wanted to acquire the lots for its land-for-the landless and on-
site development programs involving the residents occupying them. The City offered to acquire the
lots for P1,500.00 per sqm but the owners rejected the offer. The total aggregate value of the lots for
taxation purpose was P809,280.00 but the City deposited P1,500,000.00 with the Land Bank of the
Philippines to enable it to immediately occupy the same pending hearing of the case.

Both Alegar and Terocel questioned the legitimacy of the City's taking of their lots solely for the benefit
of a few long-time occupants. Alegar also pointed out that, while it declined the City's initial offer, it
did not foreclose the possibility of selling the lots for the right price. According to them, the filing of
the suit was premature because the City made no effort in good faith to negotiate the purchase.

After the trial court issued a Writ of Possession in the City’s favour, the parties agreed to forego with
the pre-trial and submit their memoranda instead, on the issue of whether or not there is a necessity
for the City to expropriate the subject properties for public use. The owners of the lots submitted their
memoranda but the City did not.

The RTC dismissed the complaint on the ground that the City did not comply with (1) Section 9 of R.A.
7279 which set the order of priority in the acquisition of properties for socialized housing, ranking
private properties last; (2) Section 10 of the same law, which authorized expropriation only when
resort to other modes (such as community mortgage, land swapping, and negotiated purchase) had
been exhausted; (3) that it also failed to show that it exhausted all reasonable efforts to acquire the
lots through a negotiated sale; and (4) that the City submitted the issue of genuine necessity to acquire
the properties for public purpose or benefit without presenting evidence on the same.

On appeal, the CA affirmed the RTC’s decision.

ISSUE:

1. WON the CA erred in a􀁄rming the RTC's ruling that the City failed to comply with the
requirements of Sections 9 and 10 of R.A. 7279 in trying to acquire the subject lots by
expropriation;

2. WON the CA erred in failing to set aside the RTC's ruling that the City failed to establish the
existence of genuine necessity in expropriating the subject lots for public use or purpose; and

3. WON the owners' withdrawal of the City’s P1.5 million deposit constituted implied consent to
the expropriation of their lots.
HELD:

1. The Supreme Court agreed with the CA when it ruled that the City failed to show that it
complied with the requirements of Section 9 of R.A. 7279 which lays down the order of priority
in the acquisition through expropriation of lands for socialized housing. In said section,
privately-owned lands ranked last in the order of priorities for such acquisition and the City
failed to show that no other properties were available for the project.

Also, Section 10 of R.A. 7279 also prefers the acquisition of private property by “negotiated
sale" over the filing of an expropriation suit. It provides that such suit may be resorted to only
when the other modes of acquisitions have been exhausted. The rationale for such is that
litigation is costly and protracted. The government should also lead in avoiding litigations and
overburdening its courts.

Further, the Court has held that when the property owner rejects the offer but hints for a
better price, the government should renegotiate by calling the property owner to a
conference. The government must exhaust all reasonable efforts to obtain by agreement the
land it desires. Its failure to comply will warrant the dismissal of the complaint.

Here, the City of Manila initially offered P1,500.00 per sqm to the owners for their
lots. But after the latter rejected the offer, the City did not bother to renegotiate or improve
its offer. The intent of the law is for the State or the local government to make a reasonable
offer in good faith, not merely a pro forma offer to acquire the property. The requirements of
Sections 9 and 10 of R.A. 7279 are strict limitations on the local government's exercise of the
power of eminent domain. They are the only safeguards of property owners against the
exercise of that power. The burden is on the local government to prove that it satisfied the
requirements mentioned or that they do not apply in the particular case.

2. No, the Supreme Court affirmed CA’s decision that the City failed to establish the existence of
genuine necessity in expropriating the subject lots for public use or purpose. Admittedly, the
City alleged in its amended complaint that it wanted to acquire the subject lots in connection
with its land-for-the-landless program and that this was in accord with its Ordinance. The
owners alleged that the taking in this particular case of their lots is not for public use or
purpose since its action would benefit only a few. Whether this is the case or not, the owners'
answer tendered a factual issue that called for evidence on the City's part to prove the
affirmative of its allegations. As already stated, the City submitted the issue for the RTC's
resolution without presenting evidence.

3. No, the Court ruled that the withdrawal of the amount did not imply consent to expropriate
the lots.

The City insists that it made a deposit of P1.5 million with the RTC by way of advance payment
on the lots it sought to expropriate. By withdrawing this deposit, respondents may be
assumed to have given their consent to the expropriation. But the advance deposit required
under Section 19 of the Local Government Code constitutes an advance payment only in the
event the expropriation prospers. Such deposit also has a dual purpose: as pre-payment if the
expropriation succeeds and as indemnity for damages if it is dismissed. This advance payment,
a prerequisite for the issuance of a writ of possession, should not be confused with payment
of just compensation for the taking of property even if it could be a factor in eventually
determining just compensation. If the proceedings fail, the money could be used to indemnify
the owner for damages.

Thus, owners' withdrawal of the deposit that the City made does not amount to a waiver of
the defenses they raised against the expropriation. With the dismissal of the complaint, the
amount or a portion of it could be awarded to the owners as indemnity to cover the expenses
they incurred in defending their right. Notably, the owners neither filed a counterclaim for
damages against the City nor did they seek indemnity for their expenses after the RTC
dismissed its action.

Consequently, the City government is entitled to the return of the advance deposit it made
and that the owners withdrew. But, considering the expenses that the owners needed to
incur in defending themselves in the appeals that the City instituted before the CA and this
Court, an award of P50,000.00 in attorney's fees against the City is in order. The owners
must return the rest of the P1,500,000.00 that they withdrew.