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.

FACTS

Respondent Romeo Teston purchased two parcels of land from petitioner Development Bank of the Philippines (DBP) under a Deed of Conditional Sale dated June 15, 1987. Teston defaulted on his amortizations, prompting DBP to rescind the contract by letter dated September 24, 1990. Prior to this rescission, Teston had voluntarily offered the lands for coverage under the Comprehensive Agrarian Reform Program (CARP) on December 1, 1988. Subsequently, DBP transferred the lands to the government pursuant to agrarian reform laws.
In 1995, Teston filed a petition before the Department of Agrarian Reform Adjudication Board (DARAB) against DBP and the Land Bank of the Philippines. He argued that under Republic Act No. 6657 (CARP Law), the government’s assumption of the land extinguished DBP’s right to rescind the sale and that his obligation was assumed by the Land Bank. The DARAB dismissed the petition, ruling that Teston, not being the owner due to the rescinded conditional sale, had no right to voluntarily offer the land and no cause of action.

ISSUE

Whether the government’s acquisition of the land under CARP extinguished DBP’s right to rescind the conditional sale and assumed Teston’s amortization obligations to DBP.

RULING

The Supreme Court ruled in favor of DBP, reinstating the DARAB decision. The legal logic is anchored on the nature of a conditional sale and the specific provisions of the CARP law. A conditional sale does not transfer ownership until full payment of the purchase price. Teston’s default and DBP’s valid rescission in 1990 occurred before the land was turned over to the government in November 1990. Consequently, Teston lost all his interests in the property prior to the CARP coverage.
The Court clarified that Section 72 of RA 6657, which provides for the government’s assumption of “mortgages and other claims,” applies only to valid, existing obligations registered at the time of taking. It cannot apply to an obligation already extinguished by a valid rescission. The government cannot assume a non-existent obligation. Furthermore, Teston, not being the owner at the time of his voluntary offer, could not validly subject the property to CARP. His claim was essentially an attempt to use agrarian reform to avoid his contractual liabilities, which the law does not sanction. The Court of Appeals’ order for DBP to return the downpayment was reversed, as the propriety of the rescission itself was no longer in issue, and such a claim for restitution was not properly raised or substantiated in the proceedings below.