G.R. No. 137285 . January 16, 2001.
ESTATE OF SALUD JIMENEZ, petitioner, vs. PHILIPPINES EXPORT PROCESSING ZONE, respondent.

FACTS

The Philippines Export Processing Zone (PEZA) initiated expropriation proceedings in 1981 over Lot 1406, registered in the name of Salud Jimenez. In 1991, the trial court upheld PEZA’s right to expropriate. The Estate moved for reconsideration, arguing the lot would be transferred to a private corporation, not used for a public purpose. The trial court subsequently released Lot 1406-A from expropriation but maintained the expropriation of Lot 1406-B. PEZA appealed this order to the Court of Appeals. While the appeal was pending, the parties entered into a Compromise Agreement dated January 4, 1993. The agreement stipulated that PEZA would withdraw its appeal regarding Lot 1406-A, and the Estate would waive claims for damages. Crucially, it also provided for a “swap” where the Estate would transfer Lot 1406-B to PEZA, and in exchange, PEZA would transfer Lot 434 to the Estate. The trial court approved this agreement.
However, PEZA failed to comply because it was not the registered owner of Lot 434; the title was under Progressive Realty Estate, Inc. Consequently, the Estate filed a motion to annul the compromise agreement. The trial court granted the motion, annulled the agreement, and ordered PEZA to peacefully turn over the lots to the Estate. PEZA challenged these orders via a petition for certiorari before the Court of Appeals.

ISSUE

Whether the Court of Appeals correctly upheld the trial court’s annulment of the compromise agreement and its order for PEZA to return the expropriated property to the Estate.

RULING

The Supreme Court affirmed the Court of Appeals’ decision. The legal logic is anchored on the nature of a judicial compromise and the principles governing expropriation. Under Article 2041 of the Civil Code, if a party fails to abide by a compromise, the other party may either enforce it or regard it as rescinded and insist upon the original demand. PEZA’s failure to transfer Lot 434, a core obligation under the agreement, constituted a material breach. This breach entitled the Estate to treat the compromise as rescinded. Consequently, the parties reverted to their original positions prior to the agreement.
Crucially, the expropriation proceedings for Lot 1406-B were never completed, as just compensation was never determined nor paid. The swap arrangement in the compromise agreement was the intended mode of payment. With the agreement rescinded due to PEZA’s breach, the transfer of Lot 1406-B to PEZA lost its legal basis. Since the property was taken without payment of just compensation, the owner is entitled to recover its possession. The trial court correctly ordered the return of the property. The Court emphasized that the determination of just compensation is a judicial function, and the expropriation process cannot be deemed complete without it. Therefore, the orders for the return of the property were proper, and the expropriation proceedings must continue for the sole purpose of determining just compensation.