Development Bank v. Teston
REITERATIONFacts
The Antecedents: Romeo Teston (respondent) entered into a Deed of Conditional Sale with the Development Bank of the Philippines (DBP) for two parcels of land. Respondent defaulted on his amortizations, leading DBP to rescind the contract. Subsequently, DBP transferred the lands to the government under the Comprehensive Agrarian Reform Law (CARL). Unbeknownst to DBP at the time of rescission, respondent had previously offered the lands for inclusion in the CARP. Procedural History: Respondent filed a petition with the Department of Agrarian Reform Adjudication Board (DARAB), arguing that his obligation to DBP was extinguished by operation of law due to the CARP coverage and that DBP's right to rescind was nullified. The DARAB Regional Adjudicator dismissed the petition, finding that respondent could not have validly offered the property to CARP as he was not the owner and DBP had already rescinded the sale. The DARAB affirmed this decision on appeal. Respondent then filed a Petition for Review with the Court of Appeals, which modified the DARAB decision by ordering DBP to return the P1,000,000 down payment made by respondent, based on the law of rescission. The Petition: DBP filed the present Petition for Review on Certiorari with the Supreme Court, assailing the Court of Appeals' order to return the P1,000,000 down payment. DBP argues that this issue was not raised in the pleadings or evidence presented before the lower courts, and that the appellate court erred in ordering the refund based on documents not formally offered as evidence. DBP further contends that under the Deed of Conditional Sale, any sums paid were to be considered rentals in case of rescission, and respondent had waived his right to demand their return.
Issue(s)
Whether the Court of Appeals erred in ordering the return of the alleged P1,000,000.00 downpayment when the issue was not raised in the pleadings before it, thereby violating DBP's right to due process. Whether the Court of Appeals erred in ordering the refund of P1,000,000.00 based on documents not formally offered as evidence in the DARAB proceedings, and whether such documents had evidentiary value. Whether, assuming the issue of deposit could be considered, DBP is obligated to return the alleged downpayment given the stipulation in the Deed of Conditional Sale that sums paid shall be considered rentals in case of rescission, and the implications of the rescission on the obligation to return payments.
Ruling
The Supreme Court granted the petition, reversed and set aside the Court of Appeals' decision, and reinstated the decision of the Department of Agrarian Reform Adjudication Board.
Ratio Decidendi
On the issue of the P1,000,000.00 downpayment and due process: The Court held that the Court of Appeals erred in ordering DBP to return the alleged downpayment. A judgment must conform to the pleadings and evidence. The CA's order exceeded the scope of relief sought, violating due process as DBP was not given an opportunity to be heard on this claim. The Court cited Jose Clavano, Inc. v. Housing and Land Use Regulatory Board for the principle that a judgment must be secundum allegata et probata. Due process requires a reasonable opportunity to be heard and to submit evidence. DBP had no opportunity to present evidence regarding the alleged P1,000,000.00 downpayment and its application to rentals. The CA's decision, by ordering the refund without this opportunity, was deemed baseless. On the admissibility of documents: The Court found that the CA based its order for refund on documents submitted before it that were not formally offered as evidence in the DARAB proceedings. This contravened Section 3 of Rule 130 and Section 34 of Rule 132 of the Rules of Court, which require original documents to be produced (with exceptions) and that no evidence shall be considered which has not been formally offered. The documents in question were mere photocopies and were not properly presented and offered as evidence, thus lacking evidentiary value. On the rescission and return of payments: While acknowledging that rescission generally creates an obligation to return the object of the contract and the price with interest, the Court found that this principle could not be applied here due to the procedural infirmities. The CA's order for refund was premature and violative of due process because DBP was not afforded the chance to present its defenses and evidence concerning the alleged downpayment and its application as rentals under the contract. The Court reiterated that the DARAB's decision, which dismissed respondent's petition, was correct in its findings regarding the validity of the rescission and the lack of a valid claim against DBP or Land Bank.
Main Doctrine
The Court of Appeals erred in ordering the return of an alleged downpayment when such issue was not raised in the pleadings before it, thereby violating the principle of due process and the rule that a judgment must conform to the pleadings and evidence presented.