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REPUBLIC v. JERRY V. DAVID

FACTS:

The respondent, Jerry V. David, an employee of the Social Security System (SSS), was awarded a house and lot by SSS under its Employees' Housing Loan Program. A Deed of Conditional Sale was executed between David and SSS. However, SSS conducted an investigation and found that David committed two violations of the deed: (1) he and his immediate family did not reside or occupy the housing unit, and (2) he allowed Buenaventura Penus to possess and occupy the property. As a result, SSS sent a letter to David revoking the deed of conditional sale. When he refused to vacate the property, SSS filed a complaint with the Quezon City Regional Trial Court (RTC) seeking the revocation of the deed and a writ of possession. During the proceedings, it was discovered that the complaint was actually for rescission of the deed, so an amended complaint was filed. David denied the violations and claimed that Penus was only a caretaker while renovations were being done on the house. The RTC dismissed the complaint and held SSS liable for costs. SSS appealed to the Court of Appeals (CA), which affirmed the trial court's decision. SSS filed a petition for review with the Supreme Court, arguing that the trial court and CA erred in holding that David did not violate the terms and conditions of the deed.

ISSUES:

  1. Whether respondent violated the terms and conditions of the Deed of Conditional Sale by failing to actually occupy and possess the property at all times and allowing other persons to do so.

  2. Whether the appellate court erred in believing respondent's claim that the house was uninhabitable when it was delivered to him.

  3. Did the respondent comply with the conditions of actual occupancy and possession at all times as required by the SSS housing loan program?

  4. Did the respondent faithfully comply with the conditions of the contract?

  5. Was rescission the proper recourse for the breach of the contractual obligations?

  6. Whether or not the petitioner is entitled to the refund of the amount he paid for the house and lot, as well as the rental payments he may have earned, and if the respondent is required to refund the full payment made by the petitioner, plus interest and the value of substantial improvements.

RULING:

  1. The Court ruled in favor of the petitioner, stating that the respondent violated the terms and conditions of the Deed of Conditional Sale. The Court also found that the appellate court erred in believing respondent's claim that the house was uninhabitable.

  2. No, the respondent did not comply with the conditions of actual occupancy and possession at all times. The requirement of possession alone was not sufficient compliance with the conditions. It was established that the respondent and/or his immediate family did not actually occupy the property, but instead, another person lived in it. The defense of the respondent was not supported by substantial evidence and was contradicted by the documentary evidence presented by the petitioner. Thus, the respondent failed to meet the conditions imposed by the SSS housing loan program.

  3. The respondent did not faithfully comply with the conditions of the contract as he violated subparagraphs (10)(a) and (c) of the contract.

  4. Rescission was the proper recourse for the breach of the contractual obligations. Rescission is implied in reciprocal obligations under Article 1191 of the Civil Code, and it is a principal action for "resolution" based on the breach of reciprocal obligations. The contract in this case is a conditional sale wherein ownership is retained by the vendor until full payment and faithful compliance with all conditions. The Deed itself provides for its annulment and cancellation in cases of breach of terms and conditions stipulated therein. Mutual restitution is required in rescission, and the respondent is obliged to return the house and lot sold, as well as any rental payments earned.

  5. The Court granted the petition, set aside the decision, and ordered the cancellation of the Deed of Conditional Sale. The respondent was ordered to pay the petitioner the full amount of P172,978.85, plus legal interest and the value of any substantial improvements on the property. The respondent was also ordered to vacate the property and surrender possession to the petitioner.

PRINCIPLES:

  • In construing a contract, the fundamental task is to ascertain the intention of the contracting parties. This is determined by looking at the words used and the context.

  • The ascertained intention of the parties is deemed an integral part of the contract, as though it has been originally expressed in unequivocal terms.

  • The reasonableness of the result obtained after analysis and construction of a contract must also be carefully considered.

  • The primary intention behind the stipulations in the Deed of Conditional Sale is to restrict the sale, use, and benefit of the housing units to SSS employees and their immediate families only.

  • The word "and" implies a conjunction, joinder, or union. It must be accepted in its common and usual meaning. In this case, the conjunctive "and" in the conditions of the housing loan program confirmed the requirement of both actual occupancy and possession at all times.

  • Possession and occupancy are distinct concepts. Possession refers to the material occupation or exercise of a right over a property, whereas occupancy connotes something real or actually existing, not merely possible or constructive. Actual possession can be either "actual" or merely constructive, while actual occupancy can only be actual or real.

  • The party asserting an affirmative allegation must prove it. In this case, the respondent failed to provide substantial evidence to support his claim that the property was not in a habitable condition. His self-serving testimony and that of his witness were not enough to establish his defense. The documentary evidence presented by the petitioner contradicted the respondent's claim.

  • Contract of adhesion is not strictly against the law. The terms of the agreement cannot be modified but can be freely rejected in its entirety by the other party. (Doctrine of contract of adhesion)

  • Contractual obligations have the force of law and must be complied with in good faith. (Doctrine of contractual obligations)

  • Rescission is the proper recourse when there is a breach of reciprocal obligations under Article 1191 of the Civil Code. Rescission restores the parties to their relative positions as if no contract has been made. (Doctrine of rescission)

  • Mutual restitution must follow rescission, wherein the parties are obliged to return the things which were the object of the contract, together with their fruits, and the price with its interests. (Doctrine of mutual restitution)

  • The cancellation of a Deed of Conditional Sale is warranted when there is non-performance or breach of any of the stipulations in the contract.

  • The refund of the purchase price, rental payments, and the value of substantial improvements may be ordered depending on the circumstances of the case.

  • The appraisal of substantial improvements by the vendor upon transfer of the property is a valid and reasonable condition in the present case.