G.R. No. L-24968 - Saura Import and Export Co., Inc. vs. Development Bank of the Philippines

Case Summary (G.R. No. L-24968)

Factual Background

Saura Import & Export Co., Inc. applied in July 1953 to the Rehabilitation Finance Corporation for an industrial loan of P500,000 to finance construction of a factory (P250,000), payment for jute mill machinery and equipment (P240,900), and working capital (P9,100). The jute mill machinery had already been purchased on the strength of a letter of credit from the Prudential Bank and Trust Co., and Saura executed a trust receipt to secure the release of the machinery. RFC approved the loan by Resolution No. 145 on January 7, 1954, prescribing the specific purposes for the proceeds and requiring certain co‑makers and staged releases as construction progressed. RFC later authorized a re‑examination of the loan under Resolution No. 736, and committees of technical men met to study the project. The loan documents were executed and the mortgage registered in April 1954, but the RFC Board, after re‑examination, reduced the loan to P300,000 by Resolution No. 3989 on June 10, 1954. Shortly thereafter China Engineers, Ltd., which had co‑signed, signified withdrawal. RFC temporarily considered the loan cancelled insofar as the corporation was concerned. RFC restored the loan to P500,000 by Resolution No. 9083 on December 17, 1954, but expressly conditioned revival upon certification by the Department of Agriculture and Natural Resources that the raw materials needed were available locally and that production prospects would supply factory requirements.

Project Purpose and Raw‑Material Condition

The project was expressly described in Saura’s own brochure as a venture to manufacture sacks and other products from “100% local raw materials, principal Kenaf,” and the RFC’s condition requiring certification of local raw‑material availability echoed that premise. Saura later acknowledged, by letter dated January 21, 1955, that kenaf would not be available in sufficient quantity for the current or possibly the ensuing year, and it requested revised releases of loan proceeds that would include funds for imported jute and other items not strictly within the original allocations. RFC replied on January 25, 1955 reiterating that the original approval contemplated reliance on locally available raw materials and refused the proposed deviation.

Procedural History

Saura filed suit for damages against RFC’s successor, Development Bank of the Philippines, on January 9, 1964, alleging failure to release the loan proceeds and consequent injury. The Court of First Instance of Manila rendered judgment for Saura on June 28, 1965, awarding P383,343.68 in actual and consequential damages, legal interest from the filing of the complaint, and attorney’s fees of P5,000. The defendant appealed. The Supreme Court took up the appeal and issued decision on April 27, 1972.

Parties’ Contentions on Appeal

The defendant contended that the plaintiff’s cause of action had prescribed or been waived or abandoned; that there was no perfected contract; and alternatively, that the plaintiff itself failed to comply with the contract terms. The plaintiff maintained that RFC/DBP breached an obligation to release loan proceeds as approved, that a perfected contract existed, and that it was entitled to recover damages.

Court’s Findings on Contract Formation

The Court found that there had been offer and acceptance and that a consensual contract existed in the sense recognized by the Civil Code. The opinion cited Art. 1954, Civil Code, observing that an accepted promise to deliver in a simple loan is binding upon the parties though the loan is perfected upon delivery. The execution and registration of the mortgage and the formal loan documents demonstrated an agreement to finance the jute mill project.

Court’s Ruling on Extinguishment by Mutual Desistance

Notwithstanding recognition of a perfected consensual contract, the Court held that the contract had been extinguished by mutual desistance. The Court emphasized that RFC’s restoration of the loan on December 17, 1954, was explicitly conditioned on the availability and prospect of local raw materials. Saura’s subsequent request in January 1955 for releases to permit reliance on imported jute and for diversion of funds to purposes other than those specified constituted a deviation from the terms embodied in Resolution No. 145 and in the mortgage. RFC’s refusal produced an impasse. Saura then requested cancellation of the mortgage, and RFC executed the deed of cancellation in June 1955 at Saura’s behest. The Court treated these mutual acts as an agreement to desist from the contract — mutuo disenso — which extinguished the obligations. The Court relied on authorities cited in the opinion to show that mutual agreement can both create and extinguish obligations.

Consideration of Plaintiff’s Conduct and Delay

The Court noted that Saura did not protest RFC’s position or reserve rights when requesting cancellation. Saura’s later conduct, including an application for a different loan in 1962 and the filing of the present action only in 1964, reinforced the Court’s conclusion that Saura had abandoned the contract and accepted cancellation. These circumstances led the Court to conclude that Saura had no enforceable claim for damages against RFC/DBP arising from the cancelled loan.

Disposition and Consequences

The Supreme Court

Case Syllabus (G.R. No. L-24968)

Parties and Procedural Posture

Saura Import & Export Co., Inc. was the plaintiff-appellee who sued for damages for alleged failure to release loan proceeds.
Development Bank of the Philippines was the defendant-appellant and successor in interest to the Rehabilitation Finance Corporation.
The trial court rendered judgment on June 28, 1965 in favor of Saura Import & Export Co., Inc., awarding P383,343.68 as actual and consequential damages, legal interest from filing, and attorney's fees of P5,000.00.
The defendant appealed that judgment to the Supreme Court.
The Supreme Court reversed the trial court's judgment and dismissed the complaint with costs against the plaintiff-appellee.

Key Factual Allegations

In July 1953 Saura Import & Export Co., Inc. applied to the Rehabilitation Finance Corporation for an industrial loan of P500,000.00 with specified allocations of P250,000.00 for factory construction, P240,900.00 for machinery, and P9,100.00 for working capital.
The jute mill machinery had already been purchased on a letter of credit from the Prudential Bank and Trust Co., and Saura executed a trust receipt for its release.
On January 7, 1954 RFC approved the loan under Resolution No. 145 and required co-signers and mortgage security, with releases to be made at RFC's discretion as construction progressed.
RFC adopted Resolution No. 736 on February 4, 1954 ordering a re-examination of the loan and its advisability in view of local jute mill conditions.
Loan documents were executed on April 13, 1954 and the mortgage was registered on April 17, 1954.
On June 10, 1954 RFC reduced the approved loan from P500,000.00 to P300,000.00 by Resolution No. 3989, while preserving prior conditions not inconsistent therewith.
On June 19, 1954 F.R. Halling notified RFC that China Engineers, Ltd. would not avail of the loan and sought cancellation of the mortgage registration.
RFC considered the P300,000.00 loan cancelled, and Saura protested and asked reinstatement to P500,000.00.
On December 17, 1954 RFC issued Resolution No. 9083 restoring the loan to P500,000.00 but expressly conditioned the restoration on certification by the Department of Agriculture and Natural Resources that local raw materials were available and that production prospects were sufficient.
Saura Import & Export Co., Inc.'s project documents expressly contemplated manufacture from 100% local raw materials, principally kenaf.
On January 21, 1955 Saura advised RFC that kenaf would not be sufficiently available and sought releases to permit importation and other deviations from the original allocation, specifying amounts and staged releases.
RFC replied on January 25, 1955 reiterating the original basis of approval—use of locally available raw materials—and declined the requested revisions and assurances for importation.
Negotiations stalled and Saura Import & Export Co., Inc. requested cancellation of the mortgage, which RFC executed on June 17, 1955.
Prudential Bank and Trust Co. sued Saura Import & Export Co., Inc. on May 15, 1955 for failure to pay the trust receipt obligation.
Saura Import & Export Co., Inc. filed the present action for damages on January 9, 1964 alleging failure to release loan proceeds as agreed.

Contract Terms and Resolutions

Resolution No. 145 (Jan. 7, 1954) approved a P500,000.00 loan with proceeds earmarked exclusively for specified uses and required a first mortgage and co-signers.
Resolution No. 736 (Feb. 4, 1954) ordered re-examination of the loan