G.R. No.

L-24968 April 27, 1972

SAURA IMPORT and !PORT "O., IN"., plaintif-appellee,
vs.
#$LOPMNT %AN& O' T( P(ILIPPINS, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintif-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MA&ALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila, jud!ent "as rendered on #une $8, %9&5
sentencin defendant 'evelop!ent (an) of the *hilippines +'(*, to pa- actual and conse.uential
da!aes to plaintif /aura I!port and 01port Co., Inc. in the a!ount of *282,232.&8, plus interest at the
leal rate fro! the date the co!plaint "as 4led and attorne-5s fees in the a!ount of *5,000.00. 6he
present appeal is fro! that jud!ent.
In #ul- %952 the plaintif +hereinafter referred to as /aura, Inc., applied to the 7eha8ilitation Finance
Corporation +7FC,, 8efore its conversion into '(*, for an industrial loan of *500,000.00, to 8e used as
follo"s9 *$50,000.00 for the construction of a factor- 8uildin +for the !anufacture of jute sac)s,:
*$30,900.00 to pa- the 8alance of the purchase price of the jute !ill !achiner- and e.uip!ent: and
*9,%00.00 as additional "or)in capital.
*arentheticall-, it !a- 8e !entioned that the jute !ill !achiner- had alread- 8een purchased 8- /aura on
the strenth of a letter of credit e1tended 8- the *rudential (an) and 6rust Co., and arrived in 'avao Cit-
in #ul- %952: and that to secure its release "ithout 4rst pa-in the draft, /aura, Inc. e1ecuted a trust
receipt in favor of the said 8an).
;n #anuar- <, %953 7FC passed 7esolution No. %35 approvin the loan application for *500,000.00, to 8e
secured 8- a 4rst !ortae on the factor- 8uildin to 8e constructed, the land site thereof, and the
!achiner- and e.uip!ent to 8e installed. =!on the other ter!s spelled out in the resolution "ere the
follo"in9
%. 6hat the proceeds of the loan shall 8e utili>ed e1clusivel- for the follo"in purposes9
For construction of factor- 8uildin *$50,000.00
For pa-!ent of the 8alance of purchase
price of !achiner- and e.uip!ent $30,900.00
For "or)in capital 9,%00.00
6 ; 6 = ? *500,000.00
3. 6hat Mr. @ Mrs. 7a!on 0. /aura, Inocencia =rellano, =niceto Caol8o- and Areoria 0sta8illo and China
0nineers, ?td. shall sin the pro!issor- notes jointl- "ith the 8orro"er-corporation:
5. 6hat release shall 8e !ade at the discretion of the 7eha8ilitation Finance Corporation, su8ject to
availa8ilit- of funds, and as the construction of the factor- 8uildins proresses, to 8e certi4ed to 8- an
appraiser of this Corporation:B
/aura, Inc. "as oCciall- noti4ed of the resolution on #anuar- 9, %953. 6he da- 8efore, ho"ever, evidentl-
havin other"ise 8een infor!ed of its approval, /aura, Inc. "rote a letter to 7FC, re.uestin a !odi4cation
of the ter!s laid do"n 8- it, na!el-9 that in lieu of havin China 0nineers, ?td. +"hich "as "illin to
assu!e lia8ilit- onl- to the e1tent of its stoc) su8scription "ith /aura, Inc., sin as co-!a)er on the
correspondin pro!issor- notes, /aura, Inc. "ould put up a 8ond for *%$2,500.00, an a!ount e.uivalent
to such su8scription: and that Maria /. 7oca "ould 8e su8stituted for Inocencia =rellano as one of the other
co-!a)ers, havin ac.uired the latter5s shares in /aura, Inc.
In vie" of such re.uest 7FC approved 7esolution No. <2& on Fe8ruar- 3, %953, desinatin of the !e!8ers
of its (oard of Aovernors, for certain reasons stated in the resolution, Bto ree1a!ine all the aspects of this
approved loan ... "ith special reference as to the advisa8ilit- of 4nancin this particular project 8ased on
present conditions o8tainin in the operations of jute !ills, and to su8!it his 4ndins thereon at the ne1t
!eetin of the (oard.B
;n March $3, %953 /aura, Inc. "rote 7FC that China 0nineers, ?td. had aain areed to act as co-siner
for the loan, and as)ed that the necessar- docu!ents 8e prepared in accordance "ith the ter!s and
conditions speci4ed in 7esolution No. %35. In connection "ith the ree1a!ination of the project to 8e
4nanced "ith the loan applied for, as stated in 7esolution No. <2&, the parties na!ed their respective
co!!ittees of enineers and technical !en to !eet "ith each other and underta)e the necessar- studies,
althouh in appointin its o"n co!!ittee /aura, Inc. !ade the o8servation that the sa!e Bshould not 8e
ta)en as an ac.uiescence on +its, part to novate, or accept ne" conditions to, the aree!ent alread-,
entered into,B referrin to its acceptance of the ter!s and conditions !entioned in 7esolution No. %35.
;n =pril %2, %953 the loan docu!ents "ere e1ecuted9 the pro!issor- note, "ith F.7. Dallin, representin
China 0nineers, ?td., as one of the co-siners: and the correspondin deed of !ortae, "hich "as dul-
reistered on the follo"in =pril %<.
It appears, ho"ever, that despite the for!al e1ecution of the loan aree!ent the ree1a!ination
conte!plated in 7esolution No. <2& proceeded. In a !eetin of the 7FC (oard of Aovernors on #une %0,
%953, at "hich 7a!on /aura, *resident of /aura, Inc., "as present, it "as decided to reduce the loan fro!
*500,000.00 to *200,000.00. 7esolution No. 2989 "as approved as follo"s9
70/;?E6I;N No. 2989. 7educin the ?oan Aranted /aura I!port @ 01port Co., Inc. under 7esolution No.
%35, C./., fro! *500,000.00 to *200,000.00. *ursuant to (d. 7es. No. <2&, c.s., authori>in the re-
e1a!ination of all the various aspects of the loan ranted the /aura I!port @ 01port Co. under 7esolution
No. %35, c.s., for the purpose of 4nancin the !anufacture of jute sac)s in 'avao, "ith special reference as
to the advisa8ilit- of 4nancin this particular project 8ased on present conditions o8tainin in the
operation of jute !ills, and after havin heard 7a!on 0. /aura and after e1tensive discussion on the
su8ject the (oard, upon reco!!endation of the Chair!an, 70/;?F0' that the loan ranted the /aura
I!port @ 01port Co. 8e 70'EC0' fro! *500,000 to *200,000 and that releases up to *%00,000 !a- 8e
authori>ed as !a- 8e necessar- fro! ti!e to ti!e to place the factor- in actual operation9 *7;FI'0' that
all ter!s and conditions of 7esolution No. %35, c.s., not inconsistent here"ith, shall re!ain in full force and
efect.B
;n #une %9, %953 another hitch developed. F.7. Dallin, "ho had sined the pro!issor- note for China
0nineers ?td. jointl- and severall- "ith the other 7FC that his co!pan- no loner to of the loan and
therefore considered the sa!e as cancelled as far as it "as concerned. = follo"-up letter dated #ul- $
re.uested 7FC that the reistration of the !ortae 8e "ithdra"n.
In the !eanti!e /aura, Inc. had "ritten 7FC re.uestin that the loan of *500,000.00 8e ranted. 6he
re.uest "as denied 8- 7FC, "hich added in its letter-repl- that it "as Bconstrained to consider as cancelled
the loan of *200,000.00 ... in vie" of a noti4cation ... fro! the China 0nineers ?td., e1pressin their desire
to consider the loan insofar as the- are concerned.B
;n #ul- $3, %953 /aura, Inc. too) e1ception to the cancellation of the loan and infor!ed 7FC that China
0nineers, ?td. B"ill at an- ti!e reinstate their sinature as co-siner of the note if 7FC releases to us the
*500,000.00 oriinall- approved 8- -ou.B.
;n 'ece!8er %<, %953 7FC passed 7esolution No. 9082, restorin the loan to the oriinal a!ount of
*500,000.00, Bit appearin that China 0nineers, ?td. is no" "illin to sin the pro!issor- notes jointl-
"ith the 8orro"er-corporation,B 8ut "ith the follo"in proviso9
6hat in vie" of o8servations !ade of the shortae and hih cost of i!ported ra" !aterials,
the 'epart!ent of =riculture and Natural 7esources shall certif- to the follo"in9
%. 6hat the ra" !aterials needed 8- the 8orro"er-corporation to carr- out its operation are
availa8le in the i!!ediate vicinit-: and
$. 6hat there is prospect of increased production thereof to provide ade.uatel- for the
re.uire!ents of the factor-.B
6he action thus ta)en "as co!!unicated to /aura, Inc. in a letter of 7FC dated 'ece!8er $$, %953,
"herein it "as e1plained that the certi4cation 8- the 'epart!ent of =riculture and Natural 7esources "as
re.uired Bas the intention of the oriinal approval +of the loan, is to develop the !anufacture of sac)s on
the 8asis of locall- availa8le ra" !aterials.B 6his point is i!portant, and sheds liht on the su8se.uent
actuations of the parties. /aura, Inc. does not den- that the factor- he "as 8uildin in 'avao "as for the
!anufacture of 8as fro! local ra" !aterials. 6he cover pae of its 8rochure +01h. M, descri8es the
project as a B#oint venture 8- and 8et"een the Mindanao Industr- Corporation and the /aura I!port and
01port Co., Inc. to 4nance, !anae and operate a enaf!ill plant, to !anufacture copra and corn 8as,
runners, Goor !attins, carpets, draperies: out of %00H local ra" !aterials, principal !enaf.B 6he
e1planator- note on pae % of the sa!e 8rochure states that, the venture Bis the 4rst serious atte!pt in
this countr- to use %00H locall- ro"n ra" !aterials nota8l- !enaf "hich is presentl- ro"n co!!erciall-
in theIsland of Mindanao "here the proposed jute!ill is located ...B
6his fact, accordin to defendant '(*, is "hat !oved 7FC to approve the loan application in the 4rst place,
and to re.uire, in its 7esolution No. 9082, a certi4cation fro! the 'epart!ent of =riculture and Natural
7esources as to the availa8ilit- of local ra" !aterials to provide ade.uatel- for the re.uire!ents of the
factor-. /aura, Inc. itself con4r!ed the defendant5s stand i!pliedl- in its letter of #anuar- $%, %9559 +%,
statin that accordin to a special stud- !ade 8- the (ureau of Forestr- B!enaf "ill not 8e availa8le in
suCcient .uantit- this -ear or pro8a8l- even ne1t -ear:B +$, re.uestin Bassurances +fro! 7FC, that !-
co!pan- and associates "ill 8e a8le to 8rin in suCcient jute !aterials as !a- 8e necessar- for the full
operation of the jute !ill:B and +2, as)in that releases of the loan 8e !ade as follo"s9
a, For the pa-!ent of the receipt for jute !ill
!achineries "ith the *rudential (an) @
6rust Co!pan- *$50,000.00
+For i!!ediate release,
8, For the purchase of !aterials and e.uip-
!ent per attached list to ena8le the jute
!ill to operate %8$,3%2.9%
c, For ra" !aterials and la8or &<,58&.09
%, *$5,000.00 to 8e released on the open-
in of the letter of credit for ra" jute
for I$5,000.00.
$, *$5,000.00 to 8e released upon arrival
of ra" jute.
2, *%<,58&.09 to 8e released as soon as the
!ill is read- to operate.
;n #anuar- $5, %955 7FC sent to /aura, Inc. the follo"in repl-9
'ear /irs9
6his is "ith reference to -our letter of #anuar- $%, %955, reardin the release
of -our loan under consideration of *500,000. =s stated in our letter of
'ece!8er $$, %953, the releases of the loan, if revived, are proposed to 8e
!ade fro! ti!e to ti!e, su8ject to availa8ilit- of funds to"ards the end that
the sac) factor- shall 8e placed in actual operatin status. Je shall 8e a8le to
act on -our re.uest for revised purpose and !anner of releases upon re-
appraisal of the securities ofered for the loan.
Jith respect to our re.uire!ent that the 'epart!ent of =riculture and
Natural 7esources certif- that the ra" !aterials needed are availa8le in the
i!!ediate vicinit- and that there is prospect of increased production thereof
to provide ade.uatel- the re.uire!ents of the factor-, "e "ish to reiterate
that the 8asis of the oriinal approval is to develop the !anufacture of sac)s
on the 8asis of the locall- availa8le ra" !aterials. Kour state!ent that -ou "ill
have to rel- on the i!portation of jute and -our re.uest that "e ive -ou
assurance that -our co!pan- "ill 8e a8le to 8rin in suCcient jute !aterials
as !a- 8e necessar- for the operation of -our factor-, "ould not 8e in line
"ith our principle in approvin the loan.
Jith the foreoin letter the neotiations ca!e to a standstill. /aura, Inc. did not pursue the !atter
further. Instead, it re.uested 7FC to cancel the !ortae, and so, on #une %<, %955 7FC e1ecuted the
correspondin deed of cancellation and delivered it to 7a!on F. /aura hi!self as president of /aura, Inc.
It appears that the cancellation "as re.uested to !a)e "a- for the reistration of a !ortae contract,
e1ecuted on =uust &, %953, over the sa!e propert- in favor of the *rudential (an) and 6rust Co., under
"hich contract /aura, Inc. had up to 'ece!8er 2% of the sa!e -ear "ithin "hich to pa- its o8liation on
the trust receipt heretofore !entioned. It appears further that for failure to pa- the said o8liation the
*rudential (an) and 6rust Co. sued /aura, Inc. on Ma- %5, %955.
;n #anuar- 9, %9&3, ahnost 9 -ears after the !ortae in favor of 7FC "as cancelled at the re.uest of
/aura, Inc., the latter co!!enced the present suit for da!aes, allein failure of 7FC +as predecessor of
the defendant '(*, to co!pl- "ith its o8liation to release the proceeds of the loan applied for and
approved, there8- preventin the plaintif fro! co!pletin or pa-in contractual co!!it!ents it had
entered into, in connection "ith its jute !ill project.
6he trial court rendered jud!ent for the plaintif, rulin that there "as a perfected contract 8et"een the
parties and that the defendant "as uilt- of 8reach thereof. 6he defendant pleaded 8elo", and reiterates
in this appeal9 +%, that the plaintif5s cause of action had prescri8ed, or that its clai! had 8een "aived or
a8andoned: +$, that there "as no perfected contract: and +2, that assu!in there "as, the plaintif itself
did not co!pl- "ith the ter!s thereof.
Je hold that there "as indeed a perfected consensual contract, as reconi>ed in =rticle %923 of the Civil
Code, "hich provides9
=76. %953. =n accepted pro!ise to deliver so!ethin, 8- "a- of co!!odatu! or si!ple
loan is 8indin upon the parties, 8ut the co!!odatu! or si!ple loan itself shall not 8e
perferted until the deliver- of the o8ject of the contract.
6here "as undou8tedl- ofer and acceptance in this case9 the application of /aura, Inc. for a loan of
*500,000.00 "as approved 8- resolution of the defendant, and the correspondin !ortae "as e1ecuted
and reistered. (ut this fact alone falls short of resolvin the 8asic clai! that the defendant failed to ful4ll
its o8liation and the plaintif is therefore entitled to recover da!aes.
It should 8e noted that 7FC entertained the loan application of /aura, Inc. on the assu!ption that the
factor- to 8e constructed "ould utili>e locall- ro"n ra" !aterials, principall- !enaf. 6here is no serious
dispute a8out this. It "as in line "ith such assu!ption that "hen 7FC, 8- 7esolution No. 9082 approved on
'ece!8er %<, %953, restored the loan to the oriinal a!ount of *500,000.00. it i!posed t"o conditions, to
"it9 B+%, that the ra" !aterials needed 8- the 8orro"er-corporation to carr- out its operation are availa8le
in the i!!ediate vicinit-: and +$, that there is prospect of increased production thereof to provide
ade.uatel- for the re.uire!ents of the factor-.B 6he i!position of those conditions "as 8- no !eans a
deviation fro! the ter!s of the aree!ent, 8ut rather a step in its i!ple!entation. 6here "as nothin in
said conditions that contradicted the ter!s laid do"n in 7FC 7esolution No. %35, passed on #anuar- <,
%953, na!el- L Bthat the proceeds of the loan shall 8e utili>ede"clusivel# for the follo"in purposes9 for
construction of factor- 8uildin L *$50,000.00: for pa-!ent of the 8alance of purchase price of !achiner-
and e.uip!ent L *$30,900.00: for "or)in capital L *9,%00.00.B 0videntl- /aura, Inc. reali>ed that it
could not !eet the conditions re.uired 8- 7FC, and so "rote its letter of #anuar- $%, %955, statin that
local jute B"ill not 8e a8le in suCcient .uantit- this -ear or pro8a8l- ne1t -ear,B and as)in that out of the
loan areed upon the su! of *&<,58&.09 8e released Bfor ra" !aterials and la8or.B 6his "as a deviation
fro! the ter!s laid do"n in 7esolution No. %35 and e!8odied in the !ortae contract, i!pl-in as it did
a diversion of part of the proceeds of the loan to purposes other than those areed upon.
Jhen 7FC turned do"n the re.uest in its letter of #anuar- $5, %955 the neotiations "hich had 8een oin
on for the i!ple!entation of the aree!ent reached an i!passe. /aura, Inc. o8viousl- "as in no position
to co!pl- "ith 7FC5s conditions. /o instead of doin so and insistin that the loan 8e released as areed
upon, /aura, Inc. as)ed that the !ortae 8e cancelled, "hich "as done on #une %5, %955. 6he action thus
ta)en 8- 8oth parties "as in the nature cf !utual desistance L "hat Manresa ter!s B!utuo disensoB
1
L
"hich is a !ode of e1tinuishin o8liations. It is a concept that derives fro! the principle that since
!utual aree!ent can create a contract, !utual disaree!ent 8- the parties can cause its
e1tinuish!ent.
2
6he su8se.uent conduct of /aura, Inc. con4r!s this desistance. It did not protest aainst an- alleed
8reach of contract 8- 7FC, or even point out that the latter5s stand "as leall- unjusti4ed. Its re.uest for
cancellation of the !ortae carried no reservation of "hatever rihts it 8elieved it !iht have aainst
7FC for the latter5s non-co!pliance. In %9&$ it even applied "ith '(* for another loan to 4nance a rice and
corn project, "hich application "as disapproved. It "as onl- in %9&3, nine -ears after the loan aree!ent
had 8een cancelled at its o"n re.uest, that /aura, Inc. 8rouht this action for da!aes.=ll these
circu!stances de!onstrate 8e-ond dou8t that the said aree!ent had 8een e1tinuished 8- !utual
desistance L and that on the initiative of the plaintif-appellee itself.
Jith this vie" "e ta)e of the case, "e 4nd it unnecessar- to consider and resolve the other issues raised
in the respective 8riefs of the parties.
JD070F;70, the jud!ent appealed fro! is reversed and the co!plaint dis!issed, "ith costs aainst the
plaintif-appellee.