If you have 32-bit Toad you need 32-bit client. 64-bit Toad requires 64-bit client. Go to Help|About in Toad, the bitness will be shown in there. What version of Toad are you on? Toad 11.6 was the first to have a 64-bit version. If your Toad is older than that you need 32-bit client. The Oracle client’s bitness must match Toad’s bitness, not that of your operating system.
If you have the proper client installed, restart Toad so that it picks up on environment variable changes. You can change your client on Toad’s login window, there’s a dropdown for it. If you want your 12 client to be the default client make sure that its path is listed first in PATH variable. If you’ve done all of those things and Toad still doesn’t see the 12 client restart your computer to make sure Toad is seeing the new variable values.