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4) Saura Import & Export v DBP, 44 SCRA 445 (1972)

1) Petitioner Saura Import & Export Co. applied with the Rehabilitation Finance
Corporation (RFC), now DBP, for an industrial loan of P500, 000 to be used for the
construction of a factory building, payment for the purchase price of the jute mill
machinery and equipment and additional working capital. RFC approved the loan to be
secured by a first mortgage on the factory buildings to be constructed, the land site
thereof, and the machinery and equipment installed. A day before the notice of
approval, Saura wrote to RFC requesting modifications of the terms to their agreement
as regards the persons and entity who shall sign the promissory notes with the
company. In view of this request, RFC issued a resolution designating its Board of
Governors to reexamine all aspects of the approved loan.

2) In connection with the reexamination of the project, the parties named their
respective committees of engineers and technical men to undertake the necessary
studies. The loan documents were then executed namely the promissory note, China
Engineers Ltd acting as co-signer, and the deed of mortgage which was duly registered.

3) Despite the formal execution of the loan agreement, the reexamination
proceeded and the Board of Governors decided to reduce the loan from P500, 000 to
P300, 000. Then, China Engineers Ltd. wrote RFC that it no longer wish to avail of the
loan and therefore considered the loan as cancelled as far as it was concerned and
requested the mortgage be withdrawn.

4) Saura wrote to RFC requesting that the P500, 000 loan be granted, but was
denied by RFC as it was constrained to consider the loan cancelled in view of China
Engineers Ltd.s desire to consider the loan cancelled as far as they are concerned.

5) Saura then informed RFC that China Engineers Ltd. will at any time act as co-
signer again if RFC releases the P500, 000 originally approved. In lieu of this, the P500,
000 loan was granted subject to conditions. It was stipulated that the Department of
Agriculture and Natural Resources must certify to that the raw materials needed by
Saura to carry out its operations are available in the immediate vicinity and that there is
prospect of increased production to provide adequately for the requirements of the

6) RFC explained the reason why certification by the Department of Agriculture was
required is to develop the manufacture of the sacks on the basis of locally available raw
materials. Saura then asked for the release of the loan and stating that it shall import
jute for the meantime. RFC then sent letter to Saura that it could not release the fund as
Sauras plan then to rely on the importation of jute was not in line with defendant's
underlying principle in approving the loan.

7) The negotiations came to a standstill. Saura did not pursue the matter any
further. Instead, it asked that the mortgage be cancelled. RFC then cancelled said
mortgage. The cancellation of the mortgage, it appears, was to make way for the
registration of another mortgage contract over the same property with Prudential Bank
and Trust. It appears further that for failure to pay the obligation, Prudential sued Saura.

8) Almost nine years after the cancellation of Sauras mortgage with RFC, Saura
commenced suit for damages against now, DBP, alleging that it had failed to comply
with the obligation to release the approved loan that prevented the plaintiff from
complying with its own commitments.

9) The trial court ruled that there was a perfected contract between the parties and
that DBP was guilty of breach thereof.

Issue: Whether there was a perfected contract of loan between the parties despite
Sauras having opted to cancel the mortgage when the negotiations came to an

Ruling: YES. Where an application for a loan of money was approved by resolution of
the defendant corporation and the corresponding mortgage was executed and
registered, there arises a perfected consensual contract of loan.

[B]ut this fact alone falls short of resolving the basic claim that defendant failed to fulfill
its obligation and that plaintiff is therefore entitled to recover damages.

Where after approval of his loan, the borrower, instead of insisting for its release, asked
that the mortgage given as security be cancelled and the creditor acceded thereto, the
action taken by both parties was in the nature of mutual desistance what Manresa
terms mutuo disenso which 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 by the parties can cause its extinguishment.

Judgment reversed.