SAURA IMPORT and EXPORT CO., INC.,

VS.DEVELOPMENT BANK OF THE

PHILIPPINES

G.R. No. L-24968 April 27, 197244 SCRA 445 

Parties InvolvedFactsIssueHeldRatio Decidendi

Case Outline

END

Plaintiff-Appellee◦ Saura Import and Export Co., Inc.

with Mabanag, Eliger and Associatesand Saura, Magno and Associates

Defendant-Appellant◦ Development Bank of the Philippines

with Jesus A. Avanceña and Hilario G. Orsolino

Ponente◦ Justice Makalintal

Saura Import and Export Co., Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of P500,000 to be used as follows:◦ Construction of a factory building : P250,000.00◦ Payment for balances on machine

and equipment : 240,900.00◦ Working capital : 9,100.00

P500,000.00

In July 1953

RFC approved the loan application through Resolution No. 145 securing it by a first mortgage

Mortgage includes:◦ Factory building to be constructed◦ Land site◦ Machinery and equipment to be installed

On January 7, 1954

That the proceeds of the loan shall be utilized exclusively for the following purposes:◦ For construction of factory building P250,000.00◦ For payment of the balance of purchase◦ price of machinery and equipment 240,900.00◦ For working capital 9,100.00

Other Terms

That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with the borrower-corporation

Other Terms (cont’d)

“That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation.”

Other Terms (cont’d)

Saura was officially notified of the approval of the loan

The day before, Saura wrote to RFC for some modifications of the terms.

On Jan. 9, 1954

Instead having China Engineers, Ltd. sign as co-maker on the corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to China Engineers, Ltd.’s subscription;

that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.

Modifications

RFC approved Res. No. 736, designating members of its Board of Governors.

"to reexamine all the aspects of this approved loan ... with special reference as to the advisability of financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the next meeting of the Board."

On Feb. 4, 1954

Sauro wrote to RFC confirming that China Engineers, Ltd. had agreed again to act as co-signer.

Sauro appointed its own committee to meet with the other and undertake necessary studies

Cleared that the same "should not be taken as an acquiescence on (its) part to novate, or accept new conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.

On March 24, 1954

Loan documents were executed◦ Promissory note◦ Deed of mortgage (duly registered on April 17)

April 13, 1954

Loan was reduced to P300,000.00 as carried out by Res. No. 3989

June 10, 1954

F.R. Hawling of China Engineers, Ltd. withdrew from the promissory note and considered the loan cancelled as far at it was concerned.

June 19, 1954

China Engineers, Ltd. requested RFC that the registration of Mortgage be withdrawn.

July 2, 1954

In the meantime, Saura had written to RFC that the loan of P500,000.00 be granted but RFC denied.

"constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."

Saura took exception to the cancellation of the loan.

It informed RFC that China Engineers, Ltd. will reinstate as co-signer if RFC will release the original P500,000.00 loan which was originally approved.

July 24, 1954

RFC passed Res. No. 9083, restoring the loan to the original amount of P500,000.00 but with certain proviso.

December 17, 1954

Need of certification from Dept. of Agriculture and Natural Resources on the following:

1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and

2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory.

Proviso

The action taken by RFC was communicated to Saura and its necessity was explained.

December 22, 1954

Saura, Inc. wrote to RFC ◦ Kenaf will not be available in sufficient quantity

aacording to a certain study by Bureau of Forestry◦ Requesting assurances that they will be able to

bring in sufficient jute materials necessary…

It was not able to get the necessary certification

Instead requested to release the loan

January 21, 1955

(1) P250,000.00 for the payment of the receipt for jute mill machineries with Prudential Bank &Trust Company , (2) P182,413.91 for the purchase of materials and equipment per attached list to enable the jute mill to operate 182,413.91, (3) P67,586.09 for raw materials and labor

(a) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00

(b) P25,000.00 to be released upon arrival of raw jute

(c) P17,586.09 to be released as soon as the mill is ready to operate.

Loan Release Request

RFC replied to Saura, Inc. saying that they will not be able to approve the loan.

January 25, 1955

RFC executed a deed of cancellation of the mortgage.  

June 17, 1955

Saura, Inc. entered into a new contract of mortgage over the same property in favor of Prudential Bank and Trust Co.

August 6, 1954

Prudential Bank and Trust Co. sued Saura, Inc. for failure to pay its obligations.

May 15, 1955

After almost 9 years, Saura, Inc. sued RFC, alleging it of failure to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing it from completing or paying contractual commitments it had entered into, in connection with its jute mill project.

January 9, 1964

Court of First Instance of Manila Judgment was rendered sentencing DBP to

pay actual damages to Saura, Inc. in the amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney’s fees in the amount of P5,000.00

On June 28, 1964

The Trial Court ruled in favor of Saura, Inc. rendering judgment that RFC was guilty of breach.

DBP pleaded: (1) that the plaintiff's cause of action had

prescribed, or that its claim had been waived or abandoned;

(2) that there was no perfected contract; (3) and that assuming there was, the plaintiff

itself did not comply with the terms thereof.

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

Whether was there a real contract of loan which would warrant recovery of damages arising out of breach of such contract. 

Issue

On the first issue:The Court held in the affirmative.There was indeed a perfected consensual

contract.

On the second issue:The Court says no.DBP is not liable for any damages to Saura,

Inc.

Held

There was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code.

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. 

Ratio Decidendi

There was undoubtedly offer and acceptance in this 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.

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. 

The previous fact alone falls short of resolving the second issue and the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.

However…

The action thus taken by both parties—Saura's request for cancellation and RFC's subsequent approval of such cancellation—was in the nature of mutual desistance — what Manresa terms "mutuo disenso"— which is a mode of extinguishing obligations.

It is a concept derived from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

Mutuo Disenso

In view of such extinguishment, say for the case, a perfected consensual contract to deliver, it did not therefore constitute a real contract of loan.

Thus, the defendant is not guilty of breach nor is liable for damages.