G.R. No. 127967 . December 14, 2005.
Federated Realty Corporation, Petitioner, vs. Hon. Court of Appeals and Republic of the Philippines, through the Commanding General of the Armed Forces of the Philippines Visayas Command (AFP-VISCOM), Respondents.

FACTS

Petitioner Federated Realty Corporation (FRC) is the registered owner of a 543-square meter lot in Cebu City, covered by Transfer Certificate of Title (TCT) No. 119929. The lot adjoins Camp Lapu-Lapu. The property originated from Lot No. 933, which was part of the Banilad Friar Lands Estate and was subjected to expropriation proceedings by the government in 1938 for a military reservation. A 1940 Decision condemned the lot, but the government admitted in related cases that there was no record of actual compensation paid to the original landowners. Lot No. 933 was subsequently subdivided and titles were issued to private parties, culminating in FRC’s purchase in 1992.
When FRC began fencing its lot, armed men from the AFP-VISCOM, led by Captain Rogelio Molina, repeatedly stopped the construction, claiming the land was part of the military reservation. FRC filed a complaint for injunction and damages. The Regional Trial Court (RTC) ruled in favor of FRC, declaring it the lawful owner and making a preliminary injunction permanent. The Court of Appeals reversed, holding that the 1940 expropriation decision vested title in the government, making FRC’s title void.

ISSUE

Whether the Court of Appeals erred in ruling that the government acquired ownership over the subject lot through the 1940 expropriation decision despite non-payment of just compensation.

RULING

Yes. The Supreme Court reversed the Court of Appeals and reinstated the RTC decision. The Court held that for the State to acquire ownership through eminent domain, two essential requisites must concur: (1) a final order of condemnation, and (2) the payment of just compensation. The 1940 decision constituted the final order of condemnation. However, the government’s own admission in previous cases involving adjacent lots from the same estate established that there was no record of payment. Payment of just compensation is a mandatory and indispensable step; without it, ownership does not pass to the expropriating authority. Consequently, the original owners retained their ownership rights and could validly transfer title through subsequent transactions. FRC, as a purchaser in good faith and for value holding a Torrens title, is entitled to possession and protection. The acts of the AFP-VISCOM agents in disrupting FRC’s construction constituted unlawful intrusion. The government’s remedy is not to simply seize the property but to initiate a new expropriation proceeding where it can duly exercise its power and pay just compensation.