SAURA IMPORT & EXPORT CO., INC v.

DEVELOPMENT BANK OF THE PHILIPPINES

Makalintal, J. 27 April 1972 G.R. No. L-24968
Doctrine When an application for a loan money was approved, and the corresponding mortgage was executed and
registered, there arises a perfected consensual contract of loan.

Mutual desistance 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 can cause its extinguishment.
Summary Saura, Inc. applied for a loan subject to a mortgage from Rehabilitation Finance Corporation (now DBP) to
put up a business, which was approved. The primary consideration of RFC in approving the loan is that
such business would develop the manufacture of sacks from locally available raw materials. However,
Saura informed RFC that there were not enough kenaf raw materials for such manufacture/production, and
thus, it will have to resort to importation. Because of this, no progress was made on the agreement by the
parties. Saura requested for the cancellation of the mortgage, to which RFC assented. After 9 years, Saura
sued RFC for breach of contract. The Court ruled that there was a perfected consensual contract, but RFC
did not breach its obligation because there was mutual desistance between the parties.
Facts • July 1953 – Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC, now DBP) for an
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industrial loan of P500,000 to put up a business of operating a Kenaf mill plant for the manufacture
of copra and corn bags/sacks, runners, floor mattings, carpets, draperies, out of 100% raw
materials. The ff. expenses are:
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o P250,000 = construction of a factory building (manufacture of jute sacks)
o P240,900 = remaining balance for the purchase price of jute mill equipment and machiner
o P9,100 = additional working capital
• Saura already purchased the jute mill machinery thru a letter of credit extended by Prudential Bank
and Trust Co. In turn, Saura executed a trust receipt in favor of Prudential.
• Resolution No. 145 – issued by RFC, which approved the loan application for P500,000, to be
secured by a first mortgage on the factory buildings, the land site, and the machinery/equipment.
o It also provided that Spouses Saura, Inocencia Arellano, Aniceto Caolboy, and Gregoria
Estabillo, and China Engineers, Ltd. Shall sign the promissory notes jointly with Saura, Inc.
o Upon notification of the resolution, Saura requested a modification on the terms—that in
lieu of China Engineers, Ltd. signing as co-maker on the promissory notes, Saura, would
put up a bond for P123,500; and that Maria S. Roca be substituted for Inocencia Arellano
as co-maker.
• In view of the request, Resolution No. 736 was issued, but the loan was subject to a reexamination
as to the advisability of financing the project on certain conditions.
o April 13, 1954 – the loan documents were executed. F.R. Halling (rep. of China Engineers)
co-signed, and the deed of mortgage was duly registered.
o Despite having the loan documents executed, the reexamination still proceeded. RFC and
President Ramon Saura agreed to reduce the loan from P500,000 to P300,000.
o June 19, 1954 – F.R. Halling with other co-signers, wrote RFC that his company no longer
wished to avail of the loan; but Saura expressed that he still wanted to pursue with the loan,
and reassured that China Engineers would reinstate their signature if the loan is restored to
P500,000.
• Thru Resolution No. 9083, RFC then restored the loan to the original amount of P500,000, but with
the following conditions:
o That in view of the shortage and high cost of imported raw materials, the Department of
Agriculture and Natural Resources must certify:
§ That the raw materials needed by Saura, Inc. are available in the immediate
vicinity; and
§ There is prospect increase in production to provide adequately for the requirements
of the factory
o Saura, Inc. replied in a letter dated January 21, 1955, stating that:
§ Kenaf will not be available in sufficient quantity for this year and next year;
§ It will have to rely on the importation of jute; and
§ It needs assurance from RFC that it will be able to bring in sufficient jute materials
for its operation
                                                                                                                       
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 The  brown  fiber  of  the  kenaf  plant,  used  to  make  paper,  ropes,  and  coarse  cloth.  
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 Rough  fiber  made  from  the  stems  of  a  tropical  Old  World  plant,  used  for  making  twine  and  rope  or  woven  into  sacking  or  matting.  
 RFC replied, and pointed out that the basis of its approval of Saura, Inc.’s loan application is to
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develop the manufacture of sacks from locally available raw materials. Hence, it did not
accept Saura, Inc.’s statements.
• Because of the differences, the negotiations stopped and Saura, Inc. did not pursue further. It
requested RFC to cancel the mortgage, which was done by the latter through a deed of
cancellation. The deed was cancelled to make way for another mortgage application as security for
payment to Prudential Bank.
• January 9, 1964 – almost 9 years after the mortgage with RFC was cancelled, Saura Inc. sued for
damages alleging that it failed to pay contractual commitments because of RFC’s failure to fulfill its
obligation to release the loan.
• TC – there was a perfected contract and that RFC was guilty in breach thereof.
Issues/Ratio I. W/N there was a perfected contract between RFC and Saura, Inc. (YES)
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a. There was a perfected consensual contract as recognized under Art. 1934 , NCC
b. There was offer and acceptance: Saura’s application for loan of P500,000 was approved by
RFC thru a resolution, and the mortgages was executed and registered.
II. W/N RFC breached its obligation under the contract (NO)
a. The two conditions provided/imposed by RFC to Saura is not a deviation from the terms of
the agreement but a step in its implementation. These did not contradict the agreement
under Resolution No. 145.
b. Saura realized that it could not meet the conditions required by RFC because the
quantity/supply of available Kenaf is insufficient, and that it will have to rely on the
importation of jute raw material.
c. With this, negotiations attained no progress. Upon Saura’s request for cancellation of
mortgage, and with RFC’s assent, there was mutual desistance or “mutuo disenso”, which
is a mode of extinguishing obligations.
d. Saura did not protest against any breach committed by RFC, or even pointed out that it was
unjustified. It even applied for another loan with DBP for a rice and corn project but was
disapproved.
Held Trial Court judgment REVERSED; complaint DISMISSED.

Prepared by: Jzev Villanueva [Credit Transactions | Vasquez]

                                                                                                                       
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 An  accepted  promise  to  deliver  something  by  way  of  commodatum  or  simple  loan  is  binding  upon  parties,  but  the  commodatum  or  simple  loan  itself  shall  not  be  
perfected  until  the  delivery  of  the  object  of  the  contract.  (n)