GR 160719; (January, 2006) (Digest)
G.R. No. 160179 & 160719, January 23, 2006
Emilio Gonzales La’O, Petitioner, vs. Republic of the Philippines and the Government Service Insurance System, Respondents.
FACTS
The Government Service Insurance System (GSIS) owned a property in Ermita, Manila. In 1978, it entered into a lease-purchase agreement with the Republic, through the Office of the Government Corporate Counsel (OGCC). In 1982, GSIS executed a second lease-purchase agreement over the same property with petitioner Emilio Gonzales La’O for P2 million, despite an existing prior contract with the OGCC. This second contract was approved by the GSIS Board and bore a marginal notation of approval by then-President Ferdinand Marcos.
In 1989, the Republic and GSIS filed a complaint seeking to nullify the second contract with La’O. They alleged the contract was grossly disadvantageous to the government, as the property was valued at around P10 million but sold for only P2 million. They further contended that the OGCC was forced to waive its rights under the first contract due to the machinations of La’O and the directives of President Marcos, whose regime exercised total power. The respondents argued the contract was void for being contrary to law and public policy.
ISSUE
Whether the second lease-purchase agreement between GSIS and petitioner Emilio Gonzales La’O is null and void.
RULING
Yes, the Supreme Court affirmed the nullity of the contract. The legal logic rests on the contract being expressly prohibited by law, rendering it inexistent and void from the beginning under Article 1409(7) of the Civil Code. The Court found the contract was grossly disadvantageous to the government, violating Section 3(g) of the Anti-Graft and Corrupt Practices Act ( R.A. No. 3019 ), which prohibits public officers from entering into contracts manifestly and grossly disadvantageous to the government.
The Court rejected the petitioner’s argument that the contract was merely voidable due to alleged vitiated consent. The distinction is crucial: voidable contracts are valid until annulled, but contracts expressly prohibited by law are void ab initio. Here, the gross disadvantage to the government, characterized by the enormous disparity between the property’s value and the purchase price, placed the contract within the ambit of a legally prohibited transaction. The involvement of the Marcos administration, where such contracts were facilitated under a climate of influence, further underscored its illegality. Consequently, the contract produced no legal effect, and the petitioner could not acquire any rights thereunder.