G.R. No. 249337, July 06, 2021
Waterfront Philippines, Inc., Wellex Industries, Inc., and The Wellex Group, Inc., Petitioners, vs. Social Security System, Respondent.

FACTS

On October 28, 1999, petitioners Waterfront Philippines, Inc. (WPI), Wellex Industries, Inc. (WII), and Wellex Group, Inc. (WGI) executed a Contract of Loan with Real Estate Mortgage with Option to Convert to Shares of Stock with respondent Social Security System (SSS) for P375,000,000.00. The loan was secured by a mortgage on two parcels of land owned by WII and by 200 million WGI common shares placed in escrow. SSS released the loan amount from October to November 1999. WPI made partial interest payments but defaulted. On December 13, 2000, the Social Security Commission approved a debt-to-property swap. Consequently, on March 14, 2001, SSS and the petitioners executed a Deed of Assignment (dacion en pago) covering the mortgaged properties at an agreed value of P267,508,000.00 to settle part of the debt, with the agreement that the properties would be transferred to SSS within 60 days. WPI and WII failed to effect the transfer due to difficulty in paying the capital gains tax. SSS rejected a new restructuring proposal from WPI, declared the entire loan due and demandable, and extrajudicially foreclosed the mortgaged properties on August 7, 2003. SSS was the highest bidder at P198,638,000.00. As WPI still had an outstanding balance, SSS filed a complaint for Sum of Money with Damages on May 13, 2004. The Regional Trial Court (RTC) dismissed the complaint, declaring the loan contract void for allegedly being ultra vires and not within SSS’s statutory powers, and ordered mutual restitution. The Court of Appeals (CA) reversed the RTC, holding the loan contract valid and enforceable, and ordered WPI to pay its outstanding obligation.

ISSUE

Whether the Contract of Loan executed between the petitioners and the SSS is valid and enforceable.

RULING

Yes, the Contract of Loan is valid and enforceable. The Supreme Court affirmed the CA’s decision. The Court held that the loan was a legitimate exercise of SSS’s power to invest its reserve funds under Section 26 of Republic Act No. 8282 (The Social Security Act of 1997). The Act expressly authorizes SSS to invest in “any direct obligation of the Government of the Philippines or any of its political subdivisions” and in “housing loans to members,” and the loan to WPI, secured by a real estate mortgage, falls within the broad category of “housing loans.” Furthermore, the petitioners are estopped from questioning the authority of the SSS officers who executed the contract. During pre-trial, the petitioners stipulated to the due execution and genuineness of the loan contract. The issue of authority was raised only in WPI’s Memorandum after the parties had formally offered their evidence, which is too late in the proceedings. The principle of estoppel applies: a party who has received benefits under a contract cannot later deny the authority of the agents who executed it. The Court also sustained the CA’s findings that WII and WGI are not solidarily liable with WPI as the contract contained no express solidary stipulation, and that WPI did not act in bad faith. The Supreme Court modified the CA’s computation of the award, ordering WPI to pay SSS the outstanding principal balance plus interest and penalty charges as stipulated, subject to the application of payments made and the foreclosure sale proceeds.