G.R. No. 146091 ; July 28, 2008
MARIA PAZ V. NEPOMUCENO and FERMIN A. NEPOMUCENO, Petitioners, vs. CITY OF SURIGAO and SALVADOR SERING, Respondents.

FACTS

Petitioner Maria Paz Nepomuceno sought to recover a 652-square-meter portion of her registered lot in Surigao City, which the city government had occupied, developed, and used as a public road since the 1960s without her consent or the institution of expropriation proceedings. After failed amicable settlement attempts where the city mayor publicly rebuffed their payment proposal, petitioners filed a complaint for recovery of property or its market value, also claiming moral and exemplary damages for the distress caused.
Respondents admitted the road’s existence but claimed it was constructed under a road right-of-way agreement with the previous owners, the spouses Fernandez, from whom Maria Paz inherited the property. They alleged the agreement was lost when the City Engineer’s Office was destroyed by a typhoon. The Regional Trial Court ordered the city to pay compensation based on the land’s value at the time of taking in the 1960s, plus legal interest and attorney’s fees, but denied moral and exemplary damages. The Court of Appeals modified this by awarding moral damages for the public rebuff and increased attorney’s fees.

ISSUE

The core issues are: (1) whether just compensation should be based on the property’s value at the time of actual payment rather than at the time of taking; (2) whether Article 1250 of the Civil Code on extraordinary inflation applies; and (3) whether exemplary damages are warranted.

RULING

The Supreme Court denied the petition, affirming the lower courts with modifications. On just compensation, the Court reiterated the settled rule that when the government takes property without expropriation proceedings, compensation is based on the market value at the time of taking, not at the time of payment. This principle ensures the owner is compensated only for the actual loss suffered when the property was taken, balancing the interests of the owner and the public. The value fixed as of 1960 shall earn legal interest until full payment.
The Court ruled Article 1250 of the Civil Code, which adjusts obligations for extraordinary inflation, applies strictly to contractual obligations. Since there was no contract between the parties here, the provision is inapplicable. Petitioners’ reliance on a Court of Appeals decision involving similar facts is misplaced, as CA decisions do not establish binding judicial precedent on the Supreme Court.
Finally, exemplary damages were properly denied. Such damages are awarded to deter socially deleterious actions or misuse of power. Both lower courts found no such misuse by the city government, a factual finding the Supreme Court saw no reason to overturn. The CA’s award of moral damages for the mayor’s public rebuff and attorney’s fees for litigation expenses was sustained.