GR 157860; (December, 2003) (Digest)
G.R. No. 157860 ; December 1, 2003
GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. THE PROVINCE OF TARLAC, respondent.
FACTS
The Sangguniang Panlalawigan of Tarlac authorized the conversion of the Urquico Memorial Athletic Field into a Government Center and the donation of portions to government agencies. The GSIS accepted an invitation to participate. Subsequently, the Province of Tarlac and the GSIS executed a Memorandum of Agreement and a corresponding Deed of Donation dated December 13, 1997, whereby the Province donated a lot to the GSIS. As stipulated, the GSIS provided P2,000,000.00 as financial assistance to the Province and proceeded to construct its office building on the donated lot.
A change in provincial administration occurred with the election of Governor Jose Yap. The new governor sought to re-evaluate the agreement, deeming its terms unfair. The Province subsequently filed a complaint before the Regional Trial Court (RTC) seeking the declaration of nullity of the donation and MOA, recovery of possession, and damages. The RTC upheld the donation’s validity and dismissed the complaint. On appeal, the Court of Appeals reversed the RTC, declaring the donation and MOA null and void for non-compliance with Section 381 of the Local Government Code, which requires a prior appraised valuation from the local committee on awards for transfers of unserviceable property.
ISSUE
Whether the Court of Appeals erred in declaring the Deed of Donation and Memorandum of Agreement null and void due to the absence of a prior appraised valuation from the local committee on awards.
RULING
The Supreme Court reversed the Court of Appeals and reinstated the RTC decision, upholding the validity of the donation. The Court clarified that the donation was onerous, given the GSIS’s financial assistance, thus making the rules on contracts principally applicable. The legal logic centered on the presumption of a contract’s validity and the absence of an express statutory declaration of nullity for non-compliance with Section 381.
The Court held that the lack of a prior appraised valuation did not render the contract inexistent or void under Article 1409 of the Civil Code. Section 381 of the Local Government Code does not expressly prohibit or declare void a transfer made without such valuation. The provision was not established as a condition sine qua non for validity. The freedom of contract is a protected right, and courts must exercise caution in invalidating agreements. A perfected contract, like the one between GSIS and the Province, has the force of law between the parties, who must abide by it in good faith. A party cannot unilaterally renounce a contract simply due to a change in administration. The Province, through its former governor, had the authority to enter into the agreement, and the subsequent disapproval by a new governor could not invalidate an already perfected and consummated contract.