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SAURA IMPORT and EXPERT CO., INC.

, vs DBP
[G.R. No. L-24968, April 27, 1972] MAKALINTAL, J.

FACTS:

In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial
loan of P500,000 to be used for the construction of a factory building, to pay the balance of
the jute mill machinery and equipment and as additional working capital. In Resolution
No.145, the loan application was approved to be secured first by mortgage on the factory
buildings, the land site, and machinery and equipment to be installed.
The mortgage was registered and documents for the promissory note were executed. But
then, later on, was cancelled to make way for the registration of a mortgage contract over the
same property in favor of Prudential Bank and Trust Co., the latter having issued Saura letter
of credit for the release of the jute machinery. As security, Saura execute a trust receipt in
favor of the Prudential. For failure of Saura to pay said obligation, Prudential sued Saura.
After almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the
latter to comply with its obligations to release the loan applied for and approved, thereby
preventing the plaintiff from completing or paying contractual commitments it had entered into,
in connection with its jute mill project.
The trial court ruled in favor of Saura, ruling that there was a perfected contract between the
parties and that the RFC was guilty of breach thereof.

ISSUE: Whether or not there was a perfected contract between the parties.

HELD:

YES. There was indeed a perfected consensual contract.

Article 1934 provides: 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 delivery
of the object of the contract.
There was undoubtedly offer and acceptance in the case. The application of Saura, Inc. for a loan of
P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was
executed and registered. The defendant failed to fulfill its obligation and the plaintiff is therefore entitled to
recover damages.

When an application for a loan of money was approved by resolution of the respondent corporation and
the responding mortgage was executed and registered, there arises a perfected consensual contract.

However, it should be noted that RFC imposed two conditions (availability of raw materials and increased
production) when it restored the loan to the original amount of P500,000.00.

Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The
action thus taken by both parties was in the nature of mutual desistance 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.