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Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 174966             February 14, 2008

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
ROMEO TESTON, represented by his Attorney-in- Fact, CONRADO O. COLLARINA, respondent.

D E C I S I O N

CARPIO MORALES, J.:

By a Deed of Conditional Sale dated June 15, 1987, Romeo Teston (respondent) purchased on installment basis from petitioner, Development Bank of the Philippines (DBP), two (2) parcels of land situated in Mandaon, Masbate, covered by Transfer Certificate of Title Nos. T-6176 and T-6177.

Respondent defaulted in the payment of his amortizations which had amounted to P3,727,435.57 as of September 1990. The DBP thus rescinded their contract by letter dated September 24, 1990 addressed to respondent.

DBP soon transferred the two (2) 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 (ACCELERATING THE ACQUISITION AND DISTRIBUTION OF AGRICULTURAL LANDS, PASTURE LANDS, FISHPONDS, AGRO-FORESTRY LANDS AND OTHER LANDS OF THE PUBLIC DOMAIN SUITABLE FOR AGRICULTURE).¹

It turned out that on December 1, 1988, respondent had voluntarily offered the two parcels of land for inclusion in the Comprehensive Agrarian Reform Program (CARP).

On September 18, 1995, respondent filed before the Department of Agrarian Reform Adjudication Board (DARAB) Regional Office in Legazpi City a Petition² against DBP and the Land Bank of the Philippines (Land Bank), alleging that under Republic Act No. 6657, his obligation to DBP was assumed by the government through the Land Bank after the two parcels of land became covered by the CARP, and that the operation of said law extinguished DBP's right to rescind the sale.

Respondent thus prayed that judgment be rendered:

1. Declaring that the right of the respondent DBP to rescind the Deed of Conditional Sale for non-payment of amortization was extinguished by operation of law;

2. That the Land Bank be ordered to pay the just compensation of the property which the Special Agrarian Court may determine to be paid to the petitioner after deducting the balance of the petitioner to the DBP.³

In its Answer/Position Paper,⁴ DBP alleged that, among other things, since respondent had not acquired title to the two parcels of land, he had no right to voluntarily offer them to the CARP.

The Land Bank raised substantially the same defenses as those raised by DBP.⁵

By Order of March 30, 1998, the DARAB Regional Adjudicator dismissed respondent's petition in this wise:

Petitioner has never been the owner of the land, hence could not have validly offered the property under the [Voluntary Offer to Sell] scheme. Under Section 72 of Republic Act No. 6657, "Other claims" can not refer to payment of amortizations, more specifically if such claim is made after the rescission of the contract. Petitioner may well have questioned the rescission of the contract in 1990 if he felt aggrieved by it and should not have allowed five (5) years to elapse before acting on the same. This creates the presumption that the rescission was reasonable and valid and the non-impairment of contracts must be respected.

As against Land Bank, petitioner has no right of action whatsoever, as there is nothing Land Bank could act on to favor their petition.

In fine, DBP being still the owner, the government cannot step in and assume the obligation to pay petitioner's amortization after his default to make him the owner of the land and to bar DBP from rescinding the conditional sale. x x x⁶ (Italics in the original; underscoring supplied)

On appeal, the DARAB affirmed the Regional Adjudicator's decision, thus:

There is no doubt that the title to the subject property has not been transferred to petitioner-appellant. The contract which he entered into with the DBP is a conditional sale, the transfer of property being conditioned upon compliance with the terms of the sale, specifically the payment in full of the purchase price. As petitioner-appellant failed to fulfill his obligation, DBP rescinded the conditional Sale. Thus, petitioner-appellant has lost whatever right he may have over the property pursuant to the contract. It is clear on the records that the Deed of Conditional Sale dated July 15, 1987 was rescinded on September 24, 1990 or long before the property was turned over to the DAR on November 29, 1990. Evidently, petitioner-appellant had long lost his interest over the property in question when the same was turned over to the national government. Hence, petitioner-appellant could not have validly offered the property under the Voluntary Offer to Sell (VOS) scheme.

Moreover, the assertion of appellant that Section 72 of RA No. 6657 "extinguishes his obligation to pay full amount to the DBP because it is already assumed by DAR or LBP is misplaced. Section 72 provides:

"Section 72 Lease, Management, Grower or Service Contract, Mortgages and Other Claims"

x x x x

(b) Mortgages and other claims registered with the [Register] of Deeds shall be assumed by the government to an amount equivalent to the landowner's compensation value as provided in this Act" (Underscoring supplied.)

Surely, the other claims alluded to by law refer to payment of amortizations under a contract of sale which have not been extinguished by rescission. The government cannot assume an obligation which does not exist.

Lastly, this Board has jurisdiction over agricultural landholdings covered by CARP in respect to the preliminary determination and payment of just compensation. (Sec. 1(b) of RULE II, DARAB New Rules of Procedure). However, as elucidated above, since petitioner-appellee is not the owner of the disputed landholdings, [h]e has no cause of action against respondents-appellees.

WHEREFORE, the Decision of the Adjudicator a quo dated March 30, 1998 is AFFIRMED in toto.⁷ (Emphasis in the original; underscoring supplied)

Respondent assailed the DARAB decision via Petition for Review⁸ before the Court of Appeals. By Decision⁹ of January 11, 2006, the appellate court modified the trial court's decision by ordering DBP to return to respondent "the P1,000,000 which [respondent] paid as downpayment," following the law on rescission.

We cannot write finis in this case without ordering respondent DBP to return the payment made by herein petitioner in view of the rescission of the subject Deed of Conditional Sale. Under Article 1385 of the Civil Code, "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests x x x." Hence, equity demands that the amount paid by the petitioner be returned to him.

WHEREFORE, the assailed Decision dated February 23, 2004 is MODIFIED. With DBP's rescission of the contract it executed with petitioner, DBP is consequently directed to return petitioner the P1,000,000.00 which the latter paid as down payment for the intended purchase of the subject parcels of land, plus 12% annual interest thereon. The decision stands in all other respects.¹⁰ (Italics and underscoring in the original.)

By a Partial Motion for Reconsideration,¹¹ DBP questioned the order to return the P1,000,000 which respondent had allegedly given as down payment. Respondent, upon the other hand, filed a "Motion to Fix Date When [the P1,000,000 Would] Earn Interest."¹²

The Court of Appeals denied DBP's Motion for Partial Reconsideration. It granted respondent's motion and accordingly held that interest on the P1,000,000 would accrue upon the finality of the judgment until full payment.¹³

Hence, DBP's present Petition for Review on Certiorari¹⁴ faulting the appellate court to have erred

I. . . . WHEN IT ORDERED DBP TO RETURN THE ALLEGED DOWNPAYMENT MADE BY PETITIONER IN THE ALLEGED AMOUNT OF P1,000,000.00 AS THIS WAS NEITHER RAISED AS AN ISSUE IN THE TRIAL COURT NOR IN PRIVATE RESPONDENT'S AMENDED PETITION FOR REVIEW IN THE COURT OF APPEALS. IT WAS NOT EVEN ALLEGED AS ONE OF PRIVATE RESPONDENT'S "ASSIGNED ERRORS."

II. . . . IN ORDERING THE REFUND OF P1,000,000.00 BASED MERELY ON DOCUMENTS SUBMITTED IN THE APPELLATE COURT BUT WERE NOT PROPERLY PRESENTED AND OFFERED AS EVIDENCE IN THE DARAB PROCEEDINGS. HENCE, THERE IS CERTAINLY NO BASIS FOR THE COURT TO ORDER DBP TO RETURN THE AMOUNT OF P1,000,000.00 TO PRIVATE RESPONDENT.

III. GRANTING ARGUENDO THAT THE ISSUE ON DEPOSIT MAY PROPERLY BE CONSIDERED, [IN] FAIL[ING] TO CONSIDER THAT UNDER THE LAW BETWEEN THE PARTIES, PETITIONER DBP IS UNDER NO OBLIGATION TO RETURN THE ALLEGED DEPOSIT OF P1,000,000.00 WHICH PRIVATE RESPONDENT ALLEGEDLY PAID AS DOWNPAYMENT, BECAUSE THE DEED OF CONDITIONAL SALE DATED JULY 15, 1987 EXPRESSLY PROVIDES THAT IN CASE OF RESCISSION OF CONTRACT, ALL SUMS OF MONEY UNDER THE CONTRACT (INCLUDING DEPOSIT) SHALL BE CONSIDERED AND TREATED AS RENTALS FOR THE USE OF THE PROPERTY, [AND]

PROFFERING THAT . . . UNDER THE SAME DEED, THE PRIVATE RESPONDENT IS DEEMED TO HAVE WAIVED ALL RIGHT/S TO ASK OR DEMAND RETURN OF THE SAID DEPOSIT.¹⁵ (Emphasis in the original)

The petition is meritorious.

The Court of Appeals erred in ordering DBP to return to respondent "the P1,000,000.00" alleged down payment, a matter not raised in respondent's Petition for Review before it. In Jose Clavano, Inc. v. Housing and Land Use Regulatory Board,¹⁶ this Court held:

x x x It is elementary that a judgment must conform to, and be supported by, both the pleadings and the evidence, and must be in accordance with the theory of the action on which the pleadings are framed and the case was tried. The judgment must be secudum allegata et probata.¹⁷ (Italics in original)

Due process considerations justify this requirement. It is improper to enter an order which exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing party an opportunity to be heard with respect to the proposed relief.¹⁸ The fundamental purpose of the requirement that allegations of a complaint must provide the measure of recovery is to prevent surprise to the defendant.¹⁹

Respondent invokes²⁰ this Court's pronouncement in Heirs of Ramon Durano, Sr. v. Uy²¹ that "[t]he Court of Appeals is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a complete and just resolution of the case."²² He argues that the return of "the P1,000,000 downpayment" is a necessary consequence of the rescission of the sale.²³

That rescission of a sale creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interests is undisputed.²⁴ However, to require DBP to return the alleged P1,000,000 without first giving it an opportunity to present evidence would violate the Constitutional provision that "[n]o person shall be deprived of life, liberty, or property without due process of law x x x."²⁵ The essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have in support of one's defense.²⁶

In the case at bar, DBP had no opportunity to present evidence on its behalf. As it contends,

Had [the] issue been raised in the lower court, petitioner DBP could have contested and presented evidence against the returning of the alleged deposit to private respondent. DBP could have shown that private respondent did not make a deposit in the amount of P1,000,000.00 but only P700,000.00 as the check for P300,000.00 was returned to him. Furthermore, the amount of P700,000.00, as previously discussed, was applied to rental pursuant to the Deed of Conditional Sale dated July 15, 1987. Since this was not raised as an issue, DBP has been denied the opportunity to rebut the belated claim of the private respondent. Manifestly, the Decision of the Appellate Court for the return of the alleged deposit made by the private respondent is baseless and was clearly in contravention of the basic rules of fair play, justice and due process.²⁷ (Emphasis and underscoring supplied)

In another vein, as DBP further contends, the Court of Appeals based its order for the refund of P1,000.000 on documents submitted before it. These documents, however, were not only mere photocopies but were never formally offered in evidence, contrary to the provision of Section 3 of Rule 130 of the Rules of Court and Section 34 of Rule 132 of the same Rules which respectively read:

SEC. 3. Original document must be produced; exceptions. - When the subject of inquiry is the contents of a document, no evidence shall be admissible other than the original document itself, except in the following cases:

(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;

(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it after reasonable notice;

(c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the fact sought to be established from them is only the general result of the whole; and

(d) When the original is a public record in the custody of a public officer or is recorded in a public office.

SEC. 34. Offer of evidence. - The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

WHEREFORE, the petition is GRANTED. The January 11, 2006 decision of the Court of Appeals is REVERSED and SET ASIDE and the decision of the Department of Agrarian Reform Adjudication Board is REINSTATED.

SO ORDERED.

CONCHITA CARPIO MORALES
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING Associate Justice Chairperson
ANTONIO T. CARPIO Associate Justice	DANTE O. TINGA Associate Justice
PRESBITERO J. VELASCO, JR. Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I certify that the conclusions in the above decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO
Chief Justice

Footnotes

¹ DARAB records, p. 30. The pagination of the DARAB records folder starts from page 84 to 52, backwards, then starts again from page 1 to 51 in the correct order.

² Id. at 1-4.

³ Id. at 2.

⁴ Id. at 29-33.

⁵ Vide id. at 35.

⁶ Id. at 41-42.

⁷ Id. at 71-72.

⁸ CA rollo, pp. 2-12; 40-49.

⁹ Penned by Court of Appeals Associate Justice Vicente S.E. Veloso, with the concurrence of Associate Justices Portia Aliño-Hormachuelos and Amelita G. Tolentino, id. at 181-190.

¹⁰ Id. at 189-190.

¹¹ Id. at 197-205.

¹² Id. at 206-208.

¹³ Id. at 219-222.

¹⁴ Rollo, pp. 29-49.

¹⁵ Id. at 36-37.

¹⁶ 428 Phil. 208 (2002).

¹⁷ Id. at 225.

¹⁸ 61B Am Jur 2d 201-202.

¹⁹ Id. at 202.

²⁰ Rollo, p. 172.

²¹ 398 Phil. 125 (2000).

²² Id. at 147.

²³ Vide rollo, pp. 175-176.

²⁴ Vide CIVIL CODE,, Article 1385.

²⁵ 1987 CONSTITUTION, Article III, Section 1 (emphasis supplied).

²⁶ Mutuc v. Court of Appeals, G.R. No. 48108, September 26, 1990, 190 SCRA 43, 49 (citations omitted).

²⁷ Rollo, p. 44.

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