Title
Metropolitan Waterworks and Sewerage System vs. Court of Appeals
Case
G.R. No. 126000
Decision Date
Oct 7, 1998
MWSS sought to nullify a 1983 land sale to SILHOUETTE, alleging fraud. The Supreme Court dismissed the case due to prescription, laches, ratification, and failure to include indispensable parties.
prescription
laches
ratification

Case Summary (G.R. No. 126000)

Factual Background

The MWSS, formerly NAWASA, leased approximately one hundred twenty-eight hectares in Balara, Quezon City to CHGCCI in 1965 for twenty-five years renewable for fifteen years, with a right of first refusal and with sale subject to presidential approval; following Letter of Instruction No. 440 of July 29, 1976, MWSS negotiated cancellation of the lease and, in November 1980, the General Manager notified CHGCCI of its preferential right to buy; Asian Appraisal Co., Inc. appraised the land at P40.00 per square meter on January 30, 1981; a December 20, 1982 communication to President Marcos recorded an agreement in principle; the MWSS Board adopted Resolution No. 36-83 approving sale to SILHOUETTE at P40.00 per square meter and authorized the General Manager to execute documents; an Agreement dated May 11, 1983 and a Supplemental Agreement dated August 11, 1983 formalized the sale to SILHOUETTE; SILHOUETTE sold about sixty-seven hectares to AYALA by deed of sale dated July 26, 1984, and AYALA developed the parcel into Ayala Heights.

Complaint and Trial Court Proceedings

On March 26, 1993, MWSS sued the listed respondents in the Regional Trial Court, seeking declaration of nullity of the MWSS–SILHOUETTE sale and all subsequent conveyances, recovery of the property, and damages; AYALA and other respondents interposed affirmative defenses including prescription, laches, waiver, estoppel, ratification, lack of cause of action, nonjoinder of indispensable parties, and lack of jurisdiction for failure to specify damages; on June 10, 1993 the trial court dismissed the complaint as to AYALA on grounds of prescription, laches, estoppel, and nonjoinder of indispensable parties, and denied motions by other respondents to dismiss in an Order of December 13, 1993; motions for reconsideration were denied on May 9, 1994.

Appeals and Certiorari Petitions

MWSS appealed the Court of Appeals portion affirming dismissal as to AYALA to the Supreme Court (G.R. No. 126000), while CHGCCI, Roman, and SILHOUETTE filed special civil actions for certiorari to the Court of Appeals which were denied; subsequent proceedings in the trial court produced a later October 1996 order granting a renewed motion to dismiss grounded on prescription, prompting a separate petition to the Supreme Court (G.R. No. 128520); by resolution of December 3, 1997 the Supreme Court consolidated both petitions for review.

Issues Presented

The consolidated petitions raised principally whether the action by MWSS was barred by prescription or laches, whether the trial court and the Court of Appeals erred in treating the complaint as one to annul a contract rather than to void a contract ab initio, whether the trial court improperly entertained affirmative defenses by motion to dismiss without hearing, whether the absence of numerous lot owners rendered the action fatally defective for nonjoinder of indispensable parties, and whether alleged defects in the authority of MWSS officers rendered the sale void.

Parties’ Contentions

MWSS argued that its complaint sought declaration of absolute nullity, which is imprescriptible, and that it pleaded six alternative causes of action so that defect in one should not defeat the complaint; it contended that its Board did not authorize the initial agreement and that authority under Art. 1874 was absent, rendering the sale void ab initio; AYALA and other respondents maintained that the contracts were at most voidable, that prescription and laches barred relief, that MWSS ratified the transactions expressly and impliedly, and that the numerous lot owners were indispensable parties whose absence required dismissal.

Prescription Analysis

The Court held that the factual allegations of the complaint established the existence of a valid contract containing the three requisites under Art. 1318, and that MWSS consented to and participated in the transactions, alleging at most vitiated consent by undue influence or fraud; consequently the contracts were voidable rather than void and the four-year prescriptive period under Art. 1391 of the New Civil Code applied; the Court explained that where undue influence is alleged, prescription begins when the defect of consent ceases, here taken as February 26, 1986, and where fraud is alleged prescription begins upon discovery, which in this case occurred no later than registration of the deeds in 1983–1984; thus the action filed in 1993 was time barred insofar as it sought annulment of voidable contracts.

Laches Analysis

The Court further held that even assuming arguendo the contracts were void ab initio and therefore imprescriptible, MWSS was nonetheless barred by laches because it delayed almost ten years from the consummation of the sale before asserting rights, while the respondents and subsequent purchasers had acted and been induced to believe the conveyances valid; the Court applied the four elements of laches—defendant’s conduct giving rise to the claim, delay in asserting rights with knowledge of defendant’s conduct, lack of expectation by defendant that the claim would be asserted, and prejudice to defendant—and found them satisfied under the complaint’s own allegations of demands, acceptance of downpayment, and acceptance of a letter of credit.

Ratification and Authority

The Court rejected MWSS’s contention that the December 20, 1982 instrument constituted a sale void for want of written authority under Art. 1874, finding that the December 20, 1982 correspondence recorded only an agreement in principle and not a completed sale; the Court found both express ratification in Board Resolution No. 36-83, which authorized execution of the contract papers, and implied ratification by silence and by acts such as repeated demands for payment, acceptance of P25 million downpayment, and retention of benefits; the Court concluded that any defect in the initial agent’s authority was cured by ratification.

Nonjoinder of Indispensable Parties

The Court agreed with the trial court that the many lot owners who subsequently acquired portions of the subject property were indispensable parties because a successful reconveyance action would directly affect their proprietary rights; the absence of those lot owners rendered the suit defective and deprived the trial court of power to render effective relief as to the absent parties, thereby justifying dismissal.

Ruling and Disposition

The Supreme Court denied the consolidated petitions and affirmed the dismissal of the complaint as to the re

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