GR L 24968; (April, 1972) (Digest)
G.R. No. L-24968. April 27, 1972.
SAURA IMPORT AND EXPORT CO., INC., plaintiff-appellee, vs. DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
FACTS
Saura Import and Export Co., Inc. applied for and was approved for a P500,000.00 industrial loan by the Rehabilitation Finance Corporation (RFC, predecessor of DBP) in January 1954. The loan was to be secured by a mortgage. The parties executed the corresponding promissory note and deed of mortgage in April 1954. However, RFC subsequently passed a resolution reducing the loan amount to P300,000.00 and imposed conditions for the release of funds. Furthermore, a co-signer, China Engineers, Ltd., later withdrew from the agreement.
Saura, Inc. then requested a release of a portion of the loan for purposes different from those originally stipulated. RFC denied this request. Subsequently, in 1955, Saura, Inc. itself requested the cancellation of the mortgage, which RFC executed. Saura, Inc. took no immediate action to protest RFC’s conduct or reserve any rights. It was only in 1964, nine years later, that Saura, Inc. filed an action for damages against DBP, alleging breach of contract.
ISSUE
Whether the loan agreement between Saura, Inc. and RFC (DBP) was still valid and enforceable, thereby making DBP liable for damages for its non-release.
RULING
No. The Supreme Court reversed the lower court’s decision and dismissed the complaint. The Court ruled that the loan agreement had been extinguished by “mutual desistance” or mutuo disenso. This legal concept holds that obligations can be extinguished by the mutual agreement of the parties, just as they can be created by mutual consent.
The logic is clear from the parties’ conduct. After RFC imposed new conditions and Saura, Inc.’s requested deviation from the original terms was rejected, an impasse was reached. Instead of insisting on performance under the original terms or suing for specific performance, Saura, Inc. voluntarily requested the cancellation of the mortgage. RFC complied. This reciprocal act of cancellation, initiated by the borrower, demonstrated a mutual agreement to abandon the contract. Saura, Inc.’s subsequent inaction for nine years, including applying for a different loan without asserting rights under the old agreement, confirmed this mutual abandonment. Therefore, no enforceable contract existed to breach, and DBP incurred no liability for damages.