Facts:
In July 1953,
Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory building for the
manufacture of jute sacks; P240,900.00 to pay the balance of the purchase price
of the jute mill machinery and equipment; and P9,100.00 as additional working
capital.
The jute mill
machinery had already been purchased by Saura on the strength of a letter of credit extended by Prudential and
arrived in Davao in July; and that to secure its release without first paying
the draft, Saura executed a trust receipt in favor of the said bank.
Saura wrote a
letter to RFC, requesting a modification of the terms laid down by it, namely:
that in lieu of 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 such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other co-makers,
having acquired the latter's shares in Saura.
RFC approved
Resolution No. 736 on February 4, 1954, designating of the members of its Board
of Governors, for certain reasons stated in the resolution, "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."
On March 24, 1954
Saura wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer
for the loan, and asked that the necessary documents be prepared in accordance
with the terms and conditions specified in Resolution No. 145. In connection
with the reexamination of the project to be financed with the loan applied for,
as stated in Resolution No. 736, the parties named their respective committees
of engineers and technical men to meet with each other and undertake the
necessary studies, although in appointing its own committee Saura made the observation 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.
On April 13,
1954 the loan documents were executed: the promissory note, with F.R. Halling,
representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following
April 17.
On June 19,
1954 another hitch developed. F.R. Halling, who had signed the promissory note
for China Engineers Ltd. jointly
and severally with the other RFC that his company no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. A
follow-up letter dated July 2 requested RFC that the registration of the mortgage
be withdrawn.
Saura had
written RFC requesting that the loan of P500,000.00 be granted. The request was
denied by RFC, which added in its letter-reply that it was "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."
On July 24,
1954 Saura took exception to the cancellation of the loan and informed RFC that
China Engineers, Ltd. "will at any time reinstate their signature as
co-signer of the note if RFC releases to us the P500,000.00
originally approved by you.".
On December
17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original
amount of P500,000.00, "it appearing that China Engineers, Ltd. is now
willing to sign the promissory notes jointly with the borrower-corporation,"
but with the following proviso:
That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural Resources
shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out
its operation are available in the immediate vicinity; and
2. That there is prospect of increased production thereof to provide
adequately for the requirements of the factory."
It was
explained that the certification by the Department of Agriculture and Natural
Resources was required "as the intention of the original approval (of the
loan) is to develop the manufacture of sacks on the basis of locally available
raw materials. Saura does not deny that the factory he was building in Davao
was for the manufacture of bags from local raw materials. The cover page of its
brochure (Exh. M) describes the project as a "Joint venture by and between
the Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to
finance, manage and operate a Kenaf mill plant, to manufacture copra and corn
bags, runners, floor mattings, carpets, draperies; out of 100% local raw
materials, principal kenaf. The venture "is the first serious attempt in
this country to use 100% locally grown raw materials notably kenaf which is presently
grown commercially in theIsland of Mindanao where the proposed jutemill is
located ..."
This fact,
according to defendant DBP, is what moved RFC to approve the loan application
in the first place, and to require, in its Resolution No. 9083, a certification
from the Department of Agriculture and Natural Resources as to the availability
of local raw materials to provide adequately for the requirements of the
factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its
letter of January 21, 1955: (1) stating that according to a special study made
by the Bureau of Forestry "kenaf will not be available in sufficient
quantity this year or probably even next year;" (2) requesting
"assurances (from RFC) that my company and associates will be able to
bring in sufficient jute materials as may be necessary for the full operation
of the jute mill;" and (3) asking that releases of
the loan for the payment of the receipt for jute mill machineries with
Prudential; for the purchase of materials and equipment per attached list to
enable the jute mill to operate; and for raw materials and labor.
On January 25,
1955, RFC sent to Saura the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the
release of your loan under consideration of P500,000. As stated in our letter
of December 22, 1954, the releases of the loan, if revived, are proposed to be
made from time to time, subject to availability of funds towards the end that
the sack factory shall be placed in actual operating status. We shall be able
to act on your request for revised purpose and manner of releases upon reappraisal
of the securities offered for the loan.
With respect to our requirement that the Department of Agriculture and
Natural Resources certify that the raw materials needed are available in the
immediate vicinity and that there is prospect of increased production thereof
to provide adequately the requirements of the factory, we wish to reiterate
that the basis of the original approval is to develop the manufacture of sacks
on the basis of the locally available raw materials. Your statement that you
will have to rely on the importation of jute and your request that we give you
assurance that your company will be able to bring in sufficient jute materials
as may be necessary for the operation of your factory, would not be in line
with our principle in approving the loan.
Saura did not
pursue the matter further. Instead, it requested the RF to cancel the mortgage.
It appears
that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor
of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up
to December 31 of the same year within which to pay its obligation on the trust
receipt heretofore mentioned. It appears further that for failure to pay the
said obligation the Prudential Bank and Trust Co. sued
Saura, Inc. on May 15, 1955.
Issues:
Whether or not
the plaintiff's cause of action had prescribed, or that its claim had been
waived or abandoned;
Whether or not
there was no perfected contract; and
that assuming
there was, whether or not the plaintiff itself did not comply with the terms thereof
Held:
There was a
perfected consensual contract as recognized in Art. 1934 of the CC.
ART. 1934. 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 perferted until the 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. But this fact alone falls
short of resolving the basic claim that the defendant failed to fulfill its
obligation and the plaintiff is therefore entitled to recover damages.
RFC
entertained the loan application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw materials,
principally kenaf. It was in line with such assumption that when RFC, by
Resolution No. 9083 approved on December 17, 1954, restored the loan to the
original amount of P500,000.00. it imposed two conditions, to wit: "(1)
that the raw materials needed by the borrower-corporation to carry out its
operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the
requirements of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather a step in its
implementation. Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC, and so wrote its letter of January 21, 1955,
stating that local jute "will not be able in sufficient quantity this year
or probably next year," and asking that out of the loan agreed upon the
sum of P67,586.09 be released "for raw materials and labor." This was
a deviation from the terms laid down in Resolution No. 145 and embodied in the
mortgage contract, implying as it did a diversion of part of the proceeds of
the loan to purposes other than those agreed upon.
When RFC
turned down the request in its letter of January 25, 1955 the negotiations
which had been going on for the implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be released as
agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done
on June 15, 1955. The action thus taken by both parties was in the nature cf
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.
The subsequent
conduct of Saura, Inc. confirms this desistance. It did not protest against any
alleged breach of contract by RFC, or even point out that the latter's stand
was legally unjustified. Its request for cancellation of the mortgage carried
no reservation of whatever rights it believed it might have against RFC for the
latter's non- compliance. In 1962 it even applied with DBP for another loan to
finance a rice and corn project, which application was disapproved. It was only
in 1964, nine years after the loan agreement had been cancelled at its own
request, that Saura, Inc. brought this action for damages.All these
circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance — and that on the
initiative of the plaintiff-appellee
itself.
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