GR 141941; (May, 2006) (Digest)
G.R. No. 141941. May 4, 2006.
REPUBLIC OF THE PHILIPPINES, OFFICE OF THE GOVERNMENT CORPORATE COUNSEL, and GOVERNMENT SERVICE INSURANCE SYSTEM, Petitioners, vs. EMILIO G. LA’O, Respondent.
FACTS
The Government Service Insurance System (GSIS) owned a property and building. An initial 1978 lease-purchase agreement existed between GSIS and the Republic, through the Office of the Government Corporate Counsel (OGCC). On May 10, 1982, a second lease-purchase agreement was executed among GSIS, the Republic, and respondent Emilio La’o, wherein the Republic waived its rights in favor of La’o as buyer. This second agreement, which included a provision for OGCC to lease part of the building for at least five years, was annotated with the words “Approved Ferdinand E. Marcos” dated April 11, 1982. After the five-year lease term ended in May 1987 without the Republic opting to renew, La’o demanded that OGCC vacate and pay unpaid rentals. OGCC refused, arguing the second agreement was ineffective for lack of presidential approval and was tainted by fraud.
ISSUE
The core issue is whether the Metropolitan Trial Court correctly ordered the ejectment of the petitioners based on the second agreement.
RULING
The Supreme Court GRANTED the petition, REVERSED the Court of Appeals, and DISMISSED the ejectment complaint. The legal logic centered on the nullity of the second agreement. The Court found the agreement grossly disadvantageous to the government, as it involved the sale of a prime property valued at P36 million for only P2 million. This constituted a corrupt practice expressly prohibited by the Anti-Graft and Corrupt Practices Act (R.A. No. 3019). Consequently, the contract was void ab initio under Article 1409(7) of the Civil Code, which declares contracts whose cause or object is contrary to law, morals, good customs, public order, or public policy as inexistent and void from the beginning. A void contract produces no legal effect and cannot be a source of obligation. Since La’o’s right to eject the petitioners and claim rentals was predicated solely on this void agreement, his cause of action had no legal basis. The Court thus ruled that the ejectment suit could not prosper, rendering a discussion on procedural issues like the sufficiency of the demand to vacate unnecessary.