GSIS vs. Province of Tarlac

A donation of real property by a local government unit to a national government instrumentality is not null and void solely because no appraised valuation from the local committee on awards was obtained prior to the transfer, as Section 381 of the Local Government Code does not expressly prohibit or declare void a transfer made without such valuation, nor does such a defect fall under any of the void contracts enumerated in Article 1409 of the Civil Code. Once perfected, the contract binds both parties and cannot be unilaterally renounced.

The Sangguniang Panlalawigan of Tarlac authorized the conversion of the Urquico Memorial Athletic Field into a Government Center and approved the segregation and donation of portions thereof to various government agencies. The Government Service Insurance System (GSIS) accepted an invitation to establish an office at the site. The Province and GSIS executed a Memorandum of Agreement and a Deed of Donation, with GSIS providing P2,000,000.00 as financial assistance. A new governor later deemed the terms unfair and sought to nullify the transaction, leading to the legal dispute.

• The Donation and MOA: On March 26, 1996, the Sangguniang Panlalawigan of Tarlac passed Resolution No. 068-96, authorizing the conversion of Urquico Memorial Athletic Field into a Government Center and the donation of portions to various government agencies. GSIS decided to put up an office on the designated lot. On December 13, 1997, the Province of Tarlac and GSIS executed a Memorandum of Agreement (MOA) and a Deed of Donation, whereby the Province donated the lot to GSIS, subject to conditions. In turn, GSIS donated P2,000,000.00 to the Province as financial assistance. The donation was duly accepted by GSIS.
• Construction and Subsequent Dispute: The City of Tarlac issued a building permit to GSIS on September 17, 1997, and construction began. Governor Jose Yap assumed office on July 1, 1998, and considered the provisions of the Deed of Donation unfair to the Province. He invited GSIS to re-evaluate their positions, and the Provincial Administrator later demanded payment of P33,590,000.00 as the balance of the lot’s value. GSIS refused to pay.
• The Complaint: On March 11, 1999, the Province of Tarlac filed a complaint against GSIS for declaration of nullity of donation and MOA, recovery of possession, enforcement of Article 449 in relation to Articles 450 and 451 of the Civil Code, and damages. The trial court found in favor of validity and dismissed the complaint.

• No Express Nullity Under the Local Government Code: GSIS argued that nothing in Section 381 of the Local Government Code expressly states that the absence of an appraised valuation renders a transfer void. The requirement is, at most, a formal and procedural requisite whose non-observance cannot overturn substantive and vested rights.
• Presumption of Validity: GSIS maintained that the Deed of Donation and MOA are onerous and thus governed by the rules on contracts. A duly executed contract carries a presumption of validity, which the Province failed to overcome.

• Violation of Section 381 of the Local Government Code: The Province of Tarlac, consistent with the Court of Appeals’ ruling, contended that the donation was void because it was executed without first securing an appraised valuation of the property from the local committee on awards, as required by Section 381 of Republic Act No. 7160. The absence of this valuation rendered the transfer contrary to law.

• Validity of Donation Without Appraised Valuation: Whether the Court of Appeals erred in declaring the Deed of Donation and Memorandum of Agreement null and void on the ground that no appraised valuation from the local committee on awards was obtained prior to the transfer, as mentioned in Section 381 of the Local Government Code.

• Validity of Donation Without Appraised Valuation: The donation and MOA were upheld as valid. The transaction being an onerous donation, the rules on contracts under the Civil Code apply. Article 1409 exhaustively lists the types of void and inexistent contracts; a transfer of real property by a local government unit to an instrumentality of the national government without a prior appraised valuation does not fall under any of those categories. Section 381 of the Local Government Code does not expressly prohibit or declare void such transfers in the absence of an appraisal. The requirement is not a condition sine qua non for validity. A duly executed contract carries a presumption of validity, and courts must exercise caution before annulling consensual agreements. The contract having been perfected, the Province, through a new administration, could not unilaterally revoke or renounce it; the parties are bound to the fulfillment of what has been expressly stipulated as well as to consequences in keeping with good faith, usage, and law. Consequently, the appellate court’s nullification was erroneous and the trial court’s dismissal was correctly reinstated.

• Presumption of Validity of Contracts — A duly executed contract carries with it the presumption of validity. The party seeking to nullify a contract bears the burden of overcoming this presumption with clear and convincing evidence.
• Void Contracts are Strictly Enumerated — Under Article 1409 of the Civil Code, contracts that are void from the beginning are limited to those enumerated therein. Unless a contract falls within one of the seven categories, or is expressly prohibited or declared void by law, it is not inexistent or void.
• Section 381 of the Local Government Code as a Procedural Requirement — The requirement of an appraised valuation from the local committee on awards under Section 381 is not a condition sine qua non for the validity of a transfer without cost. Its absence does not automatically void the transfer, absent an express statutory declaration of nullity.
• Mutuality and Binding Force of Contracts — Once a contract is perfected, the parties are bound not only to its express stipulations but to all consequences flowing from it in keeping with good faith, usage, and law. No party may unilaterally renounce or revoke a perfected contract without the consent of the other.

• "A transfer of real property by a local government unit to an instrumentality of government without first securing an appraised valuation from the local committee on awards does not appear to be one of the void contracts enumerated in the afore-quoted Article 1409 of the Civil Code. Neither does Section 381 of the Local Government Code expressly prohibit or declare void such transfers if an appraised valuation from the local committee on awards is not first obtained."
• "The freedom of contract is both a constitutional and statutory right and to uphold this right, courts should move with all the necessary caution and prudence in holding contracts void."
• "…[T]here is no express provision in the law which requires that the said valuation is a condition sine qua non for the validity of a donation."
• "The contract has the force of law between the parties and they are expected to abide in good faith by their respective contractual commitments. … It is a general principle of law that no one may be permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party."

• Ganuelas v. Cawed, G.R. No. 123968, April 24, 2003 — Applied for the rule that an onerous donation is governed by the law on contracts.
• Gabriel v. Monte de Piedad, 71 Phil. 497 (1941) — Cited to underscore the caution courts must exercise before declaring contracts void.
• Ramos v. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April 25, 2002 — Relied upon for the principle that a duly executed contract carries a presumption of validity.
• Metro Manila Development Corporation v. Jancom Environmental Corporation, G.R. No. 147465, January 30, 2002 — Invoked for the binding force of perfected contracts and the prohibition against unilateral renunciation.

• Section 381, Republic Act No. 7160 (Local Government Code of 1991) — The provision states that property no longer needed may be transferred without cost to another government office, agency, subdivision, or instrumentality "at an appraised valuation determined by the local committee on awards." The Supreme Court interpreted this requirement as not carrying an express sanction of nullity for non-compliance.
• Article 1409, Civil Code — Enumerates the contracts that are inexistent and void from the beginning. The Court found that the donation involved fell under none of the enumerated categories.
• Article 733, Civil Code — Applied to classify the donation as onerous, thereby subjecting it to the rules on contracts.
• Article 1315, Civil Code — Invoked for the principle that contracts are perfected by mere consent and bind the parties to their express stipulations and to all consequences in keeping with good faith, usage, and law.

Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ.