G.R. No. 155634 ; August 16, 2004
Republic of the Philippines, Represented by the Social Security System, petitioner, vs. Jerry V. David, respondent.

FACTS

The Social Security System (SSS) awarded a house and lot in Quezon City to its employee, respondent Jerry V. David, under its Employees’ Housing Loan Program, executing a Deed of Conditional Sale. An SSS investigation later revealed that David was not residing in the unit and had allowed a certain Buenaventura Penus to occupy it. Consequently, SSS rescinded the contract and filed a complaint for rescission and recovery of possession.
David defended that the property was uninhabitable upon delivery, requiring renovations. He claimed Penus was merely a caretaker during construction and that later, another caretaker, Oden Domingo, stayed on the premises. The trial court dismissed the complaint, finding that David, through his caretakers, had maintained possession, satisfying the contract’s condition. The Court of Appeals affirmed, ruling that possession through caretakers constituted compliance and that SSS failed to prove the occupants acted on their own behalf.

ISSUE

Whether the Court of Appeals erred in holding that respondent did not violate the terms of the Deed of Conditional Sale by not actually occupying the property and by allowing other persons to possess it.

RULING

The Supreme Court granted the petition and reversed the lower courts’ decisions. The Court held that respondent violated the explicit terms of the Deed of Conditional Sale. The contract required the awardee to “actually occupy and possess the property at all times.” The Court distinguished “actual possession” from mere legal possession or possession through agents.
The legal logic is clear: the contractual term “actual occupancy” is a specific condition designed to ensure the housing unit is used by the SSS employee-beneficiary or immediate family, aligning with the public purpose of the SSS housing program. By allowing non-family members to physically inhabit the property for an extended period, respondent breached this essential stipulation. The claim of caretakership was insufficient to excuse this breach, as it effectively transferred physical occupancy to third parties, contravening the program’s objective. Since respondent failed to comply with a material contractual obligation, rescission under Article 1191 of the Civil Code was proper. The contract’s intent would be defeated if “actual occupancy” were construed as merely having a caretaker on the premises without the beneficiary’s personal residence.