SAURA IMPORT & EXPORT CO. INC VS.

DEVELOPMENT BANK OF THE

PHILIPPINES
No. L-24968. 27 April 1972
Appeal from a judgment of CFI
MAKALINTAL, J.
Facts:
- In July 1953, Saura Inc applied to the Rehabilitation Finance Corp (RFC)
before its conversion into DBP, for an industrial loan of 500,000php to
be used for 1) construction of a factory bldg. (to manufacture jute
sacks), 2) to pay balance of purchase price of jute mill machinery, 3)
additional working capital.
- RFC passed resolution 145 approving the loan application for 500,000
to be secured by a 1st mortgage on the factory bldgs. to be constructed
and the equipment to be installed.
- Saura Inc was officially notified of the resolution on 9 January 1954. But
the day before, Saura Inc requested a modification of the terms, that in
lieu of having China Engineers, Ltd. sign as co-maker on the
promissory notes, Saura would put up a bond for 123,500php.
- RFC approved Resolution 736. But despite the formal execution of the
loan agreement the re-examination in Resolution 736 proceeded. In a
meeting of the RFC Board of Governors, it was decided to reduce the
loan from 500,000 to 300,000php. Resolution 3989 was approved
provided that all terms and conditions of Resolution 145 shall remain in
full force and effect.
- On 19 June 1954, F.R. Hailing of China Engineers + co-signers wrote
RFC that his company no longer wished to avail of the loan & therefore
considered it cancelled.
- 24 July 1954: Saura took exception of the cancellation and informed
RFC that China Engrs will reinstate their signature as co-signer if RFC
releases the 500,000 originally approved by them.
- 17 Dec 1954: RFC passed Resolution 9083, restoring the loan to
original amt of 500,000.
- RFC required a certification from Department of Agriculture and Natural
Resources as to the availability of local raw materials to provide for the
factorys requirements. Saura confirmed this by requesting assurance
from RFC that the company will be able to bring in sufficient jute
materials necessary.
- RFC replied that the basis of the original approval is to develop the
manufacture of sacks on the basis of the locally available raw materials
(principally kenaf), hence giving assurance to Saura would not be in
line with their principle in approving the loan. Saura then requested to
cancel the mortgage. This cancellation was to make way for the
registration of a mortgage contract, executed on August 5 1964 over

the same property in favor of Prudential Bank & Trust Co. The latter
sued Saura after failing to pay.
On 9 January 1964, almost 9 years after the mortgage in favor of RFC
was cancelled, Saura commenced the present suit for damages
alleging failure of RFC to comply with its obligation to release proceeds
of loan.
Trial court was in favor of Saura, saying there was already a perfected
contract between parties and DBP was guilty of breach.

Issue:
- WON DBP failed to comply with the terms of the contract with Saura,
Inc.
Held:
- No. Decision reversed. Complaint dimissed.
Ruling:
- There was indeed a perfected contract, as recognized by:
- Art. 1954. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
- But the fact alone falls short of resolving the claim that DPB failed to
fulfill its obligations.
- RFC entertained the loan application on the assumption that the
factory would utilize locally grown raw materials, principally kenaf.
There was no dispute about this.
- But since Saura could not meet the conditions required by RFC, and so
wrote its letter of January 21, 1955, stating that local jute will not be
available in sufficient quantity this year or probably next year, and
asking that out of the loan agreed upon the sum of P67,586.09 be
released for raw materials and labor. This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the proceeds of the
loan to purposes other than those agreed upon. So Saura asked the
mortgage to be cancelled.
- The action thus taken by both parties was in the nature of mutual
desistance - what Manresa terms mutuo disenso - which is a mode of
extinguishing obligations. It is a concept that derives from the principle
that since mutual agreement can create a contract, mutual
disagreement by the parties can cause its extinguishment.
- Saura did not protest any alleged breach of contract by RFC. It was
only 9 yrs after it had been cancelled that Saura brought this action for
damages.