Waterfront Philippines v. Social Security System
REITERATIONFacts
The Antecedents: On October 28, 1999, Waterfront Philippines, Inc. (WPI), Wellex Industries, Inc. (WII), and The Wellex Group, Inc. (WGI) executed a Contract of Loan with Real Estate Mortgage with Option to Convert to Shares of Stock for P375,000,000.00 with the Social Security System (SSS). WII mortgaged two parcels of land as security, and WGI delivered 200 million of its common shares. SSS released the loan amount in three tranches. WPI made partial payments and offered additional shares as collateral. Subsequently, WPI's indebtedness reached P419,885,517.80. SSS approved WPI's offer for a debt-to-property swap (dacion en pago) of the mortgaged properties for P267,508,000.00, with an agreement to restructure the remaining balance. A Deed of Assignment (dacion en pago) was executed on March 14, 2001, stipulating that failure to transfer the properties within 60 days would render the dacion en pago null and void, allowing SSS to collect the debt under the original loan contract. WPI failed to transfer the properties due to difficulties in paying capital gains tax. SSS rejected WPI's restructuring proposal and declared the entire loan due and demandable, demanding P577,005,247.26. SSS extrajudicially foreclosed the mortgaged properties, with SSS as the highest bidder at P198,638,000.00. Despite the foreclosure, WPI still had an outstanding balance of P452,750,886.28. Procedural History: SSS filed a complaint for Sum of Money with Damages against WPI, WII, and WGI. The Regional Trial Court (RTC) dismissed the complaint, finding no bad faith or fraud by WPI, upholding the rescission of the dacion en pago, and declaring WII and WGI not solidarily liable. Crucially, the RTC declared the contract of loan void for lack of authority of SSS officers (EVP Veroy and SVP Solilapsi) to enter into it, as only the SSS President is authorized by R.A. No. 8282, and the loan did not fall under the allowed investments for reserve funds. The RTC ordered mutual restitution. The Court of Appeals (CA) reversed the RTC, upholding the validity of the loan and foreclosure, and ordering WPI to pay the deficiency. The CA ruled that the issue of SSS officers' authority was not timely raised and that petitioners were estopped from assailing the contract after stipulating on its genuineness and due execution. The Petition: Petitioners Waterfront Philippines, Inc., Wellex Industries, Inc., and The Wellex Group, Inc. filed a Petition for Review on Certiorari, arguing that the CA erred in not considering the lack of authority of SSS officers and the invalidity of the loan contract, which rendered the accessory mortgage contract void. They contended that estoppel cannot legitimize an act prohibited by law.
Issue(s)
Whether the SSS officers had the authority to enter into the contract of loan and whether the principal contract of loan is valid. Whether the issue of authority was timely raised and the applicability of estoppel. Whether the accessory mortgage contract is valid and the consequences of the principal contract being void.
Ruling
The Supreme Court granted the petition, reversed the Court of Appeals Decision, and declared the Contract of Loan with Real Estate Mortgage with Option to Convert to Shares of Stock, and all accessory contracts, as null and void. The Certificate of Sale dated September 19, 2003, was also declared null and void. The Court ordered mutual restitution between the parties.
Ratio Decidendi
On the Authority of SSS Officers and Validity of the Loan Contract: The Court held that the contract of loan was void for being ultra vires. R.A. No. 8282 vests the general conduct of SSS operations in its President. The contract was signed by EVP Veroy and SVP Solilapsi without proof of delegation or approval from the President or the Social Security Commission (SSC). Furthermore, the loan transaction did not fall under the specific purposes for investment of SSS reserve funds as enumerated in Section 26 of R.A. No. 8282. The express mention of allowable investments implies the exclusion of others (expressio unius est exclusio alterius). The SSS failed to present evidence that the loan complied with the conditions for investments in real estate or secured loans. Therefore, the contract was an illegal ultra vires act, rendering it void. The doctrine of estoppel cannot validate an act that is void or ultra vires. As a consequence of the void contract, the parties must be restored to their original positions. Waterfront Philippines, Inc. must return the P375,000,000.00 loan principal to SSS, with legal interest. SSS must return the P35,827,695.87 in partial payments made by WPI, with legal interest. SSS must also reconvey the mortgaged properties to WII, return the original titles, and return the shares of WPI to WGI and shares of WII to WII, along with all fruits, income, and dividends derived therefrom, with legal interest. On the Issue of Timeliness and Estoppel: The Court disagreed with the CA that the issue of authority was not timely raised. The validity of the contract of loan was the core issue of the complaint, and matters relating to authority, purpose, and legality are intrinsically included. Petitioners had contested the authority during the trial and in their Memorandum. The Court emphasized that courts cannot ignore express provisions of law and are mandated to take judicial notice of legislative acts. The RTC correctly ruled on the validity of the contract. On the Validity of the Accessory Mortgage Contract: Since the principal contract of loan was declared void, the accessory contract of mortgage, which cannot exist without a principal obligation, is likewise rendered void. The Certificate of Sale resulting from the foreclosure of this void mortgage is also null and void.
Main Doctrine
A contract entered into by an officer of the Social Security System (SSS) without the express authority from the SSS President, or in violation of the SSS charter (R.A. No. 8282) regarding the investment of reserve funds, is ultra vires and void. Consequently, the accessory mortgage contract is also void, and the parties must be restored to their original positions.