G.R. No. 126000 & G.R. No. 128520 October 7, 1998
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS), petitioner, vs. COURT OF APPEALS, HON. PERCIVAL LOPEZ, AYALA CORPORATION and AYALA LAND, INC., respondents. (G.R. No. 126000)

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. HON. PERCIVAL MANDAP LOPEZ, CAPITOL HILLS GOLF AND COUNTRY CLUB INC., SILHOUETTE TRADING CORPORATION, and PABLO ROMAN JR., respondents. (G.R. No. 128520)

FACTS

In 1965, petitioner MWSS (then NAWASA) leased approximately 128 hectares of its land in Balara, Quezon City, to respondent Capitol Hills Golf & Country Club Inc. (CHGCCI) for 25 years, renewable for another 15 years, with a stipulation granting CHGCCI a right of first refusal should the property be sold, subject to presidential approval. Pursuant to Letter of Instruction No. 440 issued by President Ferdinand E. Marcos in 1976 directing MWSS to negotiate the cancellation of the lease for the property’s disposition, MWSS informed CHGCCI of its preferential right to buy. The Asian Appraisal Co., Inc. appraised the fair market value at P40.00 per square meter. President Marcos expressed his approval of the sale in principle. The MWSS Board of Trustees passed Resolution 36-83, approving the sale of the property to Silhouette Trading Corporation (SILHOUETTE) as assignee of CHGCCI at the appraised value, subject to presidential approval. A Sales Agreement dated May 11, 1983, was executed between MWSS and SILHOUETTE for a total price of P50,925,200. A Supplemental Agreement was forged on August 11, 1983. Subsequently, SILHOUETTE sold about 67 hectares of the property to respondents Ayala Corporation and Ayala Land, Inc. (AYALA) under a deed of sale dated July 26, 1984, at P110.00 per square meter. Ayala developed the land into the Ayala Heights Subdivision. Almost a decade later, on March 26, 1993, MWSS filed an action in the Regional Trial Court seeking the declaration of nullity of the MWSS-SILHOUETTE sales agreement and all subsequent conveyances, and for recovery of the property with damages. The trial court dismissed the complaint against Ayala on grounds of prescription, laches, estoppel, and non-joinder of indispensable parties. MWSS appealed to the Court of Appeals, which affirmed the dismissal. MWSS then filed petitions for review with the Supreme Court. Meanwhile, the trial court also granted motions to dismiss filed by respondents CHGCCI, SILHOUETTE, and Pablo Roman Jr., prompting MWSS to file another petition, leading to the consolidation of G.R. Nos. 126000 and 128520.

ISSUE

The primary issues are whether the complaint against the respondents should be dismissed on the grounds of (1) prescription of the action; (2) laches; (3) estoppel or ratification by MWSS; and (4) non-joinder of indispensable parties (the lot owners in the subdivision).

RULING

The Supreme Court DENIED the consolidated petitions, thereby upholding the dismissal of MWSS’s complaint.
1. On Prescription: The Court ruled that the action had prescribed. The cause of action, being one for annulment of a voidable contract (due to alleged lack of presidential approval), prescribes in four years from the time the defect (the ratification by the President) could have been invoked. The Court found that MWSS, through its officers, had acknowledged the perfection and validity of the sale by its subsequent acts (e.g., demanding payment, accepting the down payment, and accepting a letter of credit for the balance) as early as 1983-1984. MWSS filed its complaint only in 1993, well beyond the four-year prescriptive period.
2. On Laches: The Court found MWSS guilty of laches. It neglected to assert its claim for an unreasonably long period (almost ten years) while the respondents, particularly Ayala, altered their position in good faith by developing the land into a valuable residential subdivision. This delay prejudiced the respondents and made it inequitable to grant MWSS relief.
3. On Estoppel and Ratification: The Court held that MWSS is estopped from assailing the validity of the sale and is deemed to have ratified it. Ratification was shown through the Board Resolution approving the sale, the execution of the sales agreement, and the subsequent acts of demanding and accepting payments. Implied ratification arose from MWSS’s silence or acquiescence over many years and its retention of the benefits of the transaction without returning the payments received.
4. On Non-joinder of Indispensable Parties: The Court affirmed that the numerous lot owners of the Ayala Heights Subdivision are indispensable parties. An action for reconveyance of the property would directly affect their proprietary rights. Their absence from the suit renders the trial court without authority to render a valid judgment, warranting the dismissal of the complaint.