Metropolitan Waterworks and
Sewerage System vs Court of Appeals, GR No 12600 and 128520, October 7, 1998
Subject: Obligations and
Contracts
FACTS
Sometime in 1965, petitioner MWSS
(then known as NAWASA) leased around one hundred twenty-eight (128) hectares of
its land (hereafter, subject property) to respondent CHGCCI (formerly the
International Sports Development Corporation) for twenty-five (25) years and
renewable for another fifteen (15) years or until the year 2005, with the
stipulation allowing the latter to exercise a right of first refusal should the
subject property be made open for sale. The terms and conditions of respondent
CHGCCI's purchase thereof shall nonetheless be subject to presidential
approval.
Pursuant to Letter of instruction
(LOI) No. 440 issued on July 29,1976 by then President Ferdinand E. Marcos
directing petitioner MWSS to negotiate the cancellation of the MWSS-CHGCCI
lease agreement for the disposition of the subject property, Oscar Ilustre,
then General Manager of petitioner MWSS, sometime in November of 1980 informed
respondent CHGCCI, through its president herein respondent Pablo Roman, Jr., of
its preferential right to buy the subject property which was up for sale. After
MWSS and respondent CHGCCI had already agreed in principle on the purchase of
the subject property, President Marcos expressed his approval of the sale.
The Board of Trustees of
petitioner MWSS thereafter passed Resolution 36-83, approving the sale of the
subject property in favor of respondent SILHOUETTE, as assignee of respondent
CHGCCI, at the appraised value given by Asian Appraisal Co., Inc.
In MWSS-SILHOUETTE Agreement, the
total price for the subject property is P50,925,200: P25 Million of which was
to be paid upon President Marcos' approval of the contract and the balance to
be paid within one (1) year from the transfer of the title to respondent
SILHOUETTE as vendee with interest at 12% per annum. The balance was also
secured by an irrevocable letter of credit. A Supplemental Agreement was forged
between petitioner MWSS and respondent SILHOUETTE to accurately identify the
subject property.
Subsequently, respondent
SILHOUETTE, under a deed of sale sold to respondent AYALA about sixty-seven
(67) hectares of the subject property. Of the total price of around P74
Million, P25 Million was to be paid by respondent AYALA directly to petitioner
MWSS for respondent SILHOUETTE's account and P2 Million directly to respondent
SILHOUETTE. P11,600,000 was to be paid upon the issuance of title in favor of
respondent AYALA, and the remaining balance to be payable within one (1) year
with 12% per annum interest.
Respondent AYALA developed the
land it purchased into a prime residential area now known as the Ayala Heights
Subdivision. Almost a decade later, petitioner MWSS filed an action against all
herein named respondents before the RTC of Quezon City seeking for the
declaration of nullity of the MWSS-SILHOUETTE sales agreement and all
subsequent conveyances involving the subject property, and for the recovery
thereof with damages.
ISSUE
Whether or not the contract of
sale is null and void.
RULING
No.
Under the law (Art. 1390, NCC),
voidable or annullable contracts are existent, valid, and binding, although
they can be annulled because of want of capacity or vitiated consent of the one
of the parties, but before annulment, they are effective and obligatory between
parties. Hence, it is valid until it is set aside, and its validity may be
assailed only in an action for that purpose. They can be confirmed or ratified.
In this case, the three elements
are present. It cannot be otherwise argued that the contract had for its object
the sale of the property and the cause or consideration thereof was the price
to be paid (on the part of respondents CHGCCI/SILHOUETTE) and the land to be
sold (on the part of petitioner MWSS). Likewise, petitioner MWSS' consent to the
May 11, 1983, and August 11, 1983, Agreements is patent on the face of these
documents and on its own resolution No. 36-83.
As noted by both lower courts, petitioner MWSS admits that it consented to the sale of the property, with the qualification that such consent was allegedly unduly influenced by the President Marcos. Taking such allegation to be hypothetically true, such would have resulted in only voidable contracts because all three elements of a contract, still obtained, nonetheless. The alleged vitiation of MWSS' consent did not make the sale null and void ab initio. Thus, "a contract where consent is given through mistake, violence, intimidation, undue influence or fraud, is voidable”. Contracts "where consent is vitiated by mistake, violence, intimidation, undue influence or fraud" are voidable or annullable.
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