G.R. No. 174966 - Development Bank of the Philippines vs. Teston

On June 15, 1987, Romeo Teston purchased two parcels of land in Mandaon, Masbate (TCT Nos. T-6176 and T-6177) from the Development Bank of the Philippines (DBP) on an installment basis through a Deed of Conditional Sale.
The conditional sale was expressly subject to full payment of the purchase price in amortizations.
As of September 1990, Teston had defaulted in his amortization payments, which had accumulated to P3,727,435.57.
Consequently, DBP rescinded the contract by sending a letter dated September 24, 1990 to Teston.

Following the rescission, DBP transferred the two parcels of land to the government in compliance with Republic Act No. 6657 (Comprehensive Agrarian Reform Law of 1988) and Executive Order 407 dated June 14, 1990.
It was later revealed that Teston had voluntarily offered the land for inclusion in the Comprehensive Agrarian Reform Program (CARP) on December 1, 1988.
On September 18, 1995, Teston filed a petition before the Department of Agrarian Reform Adjudication Board (DARAB) Regional Office in Legazpi City against DBP and the Land Bank of the Philippines.

His petition alleged that under RA No. 6657, the government, through the Land Bank, had assumed his payment obligations, which in effect extinguished DBP’s right to rescind the conditional sale.

Proceedings Before the Department of Agrarian Reform Adjudication Board (DARAB)

The adjudicator held that Teston, not having acquired title due to non-compliance with the conditional sale terms, could not validly offer the property for CARP.
It was further noted that, as a rescission had occurred, DBP’s right to question the rescission was not available after a lapse of five years, thus presuming the rescission was valid and reasonable.

The appraisal clarified that DBP, still being the owner of the land at the time of transfer to government, was not obligated to assume the appellant’s payment obligation.

Teston assailed the DARAB decision by filing a Petition for Review before the Court of Appeals.
On January 11, 2006, the Court of Appeals modified the trial court decision by ordering DBP to return a P1,000,000 down payment allegedly made by Teston.

The appellate court reasoned that, under Article 1385 of the Civil Code and the principle of rescission, the rescission created an obligation to return monies paid and their fruits.

The issue of the alleged down payment was not raised in the lower courts.
The evidence presented regarding the P1,000,000 down payment was neither formally introduced nor properly offered.
Under the terms of the conditional sale, all sums were considered rentals for the use of the property upon rescission, thereby waiving any right to demand a return of the deposit.

DBP argued that the documents submitted in the Court of Appeals were mere photocopies and were not formally entered as evidence.
The submission contravened the rules requiring the presentation of original documents or proper exceptions under Rule 130 and Rule 132 of the Rules of Court.
Due process considerations were also emphasized, highlighting that DBP was deprived of an opportunity to rebut the belated claim concerning the alleged P1,000,000.

Whether DBP’s rescission of the Deed of Conditional Sale, due to Teston’s default in payment, was valid and raised no obligation for DBP to assume any further payment responsibilities under RA No. 6657.

The issue centered on Teston’s claim that the government, through the Land Bank, had assumed DBP’s right to collect the unpaid amortizations under the agrarian reform law.
It also raised the question of whether Teston could validly offer the property under the Voluntary Offer to Sell (VOS) scheme since he had not acquired title to the land.

Whether the Court of Appeals erred in ordering DBP to return the P1,000,000 allegedly paid as down payment.

This issue involved the proper application of Article 1385 of the Civil Code regarding rescission.
It questioned the evidentiary basis for determining the existence and amount of the down payment.
It also involved procedural concerns, particularly the failure to provide DBP an opportunity to present evidence regarding the disputed amount.

Whether the order to return the alleged deposit violated DBP’s due process rights.

The issue examined whether DBP was given a fair opportunity to contest the newly raised issue of the alleged P1,000,000 down payment.
It involved the consideration of whether the decision exceeded the scope of the pleadings and entered into issues not previously litigated.