G.R. No.

L-24968 April 27, 1972 44 SCRA 445

 Parties Facts Issue

Involved

Held

Ratio

Decidendi

Plaintiff-Appellee
Saura Import and Export Co., Inc. with Mabanag, Eliger and Associates and Saura, Magno and Associates

Defendant-Appellant
Development Bank of the Philippines with Jesus A. Avancea 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

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

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

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

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.

Saura was officially notified of the approval of the loan The day before, Saura wrote to RFC for some modifications of the terms.

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 comakers, having acquired the latter's shares in Saura, Inc.

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."

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

Loan documents were executed

Promissory note Deed of mortgage (duly registered on April 17)

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

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

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 requested RFC that the registration of Mortgage be withdrawn.

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.

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

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

1.

2.

That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and That there is prospect of increased production thereof to provide adequately for the requirements of the factory.

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

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

(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.

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

RFC executed a deed of cancellation of the mortgage.

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

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

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.

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 attorneys fees in the amount of P5,000.00

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.

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.

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.

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.

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.

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.