G.R. No.

L-33022 April 22, 1975

CENTRAL BANK OF THE PHILIPPINE, petitioner, vs. CO!RT OF APPEAL "#$ ABLA%A
CONTR!CTION & FINANCE CORPORATION, respondents.
F.E. Evangelista for petitioner.
Cruz, Villarin & Laureta for private respondent.

BARRE'O, J.:+.wph!1
Petition of the Central Bank of the Philippines for review of the decision of the Court of Appeals in CA-G.R. No.
433!-R affir"in# the $ud#"ent of the Court of %irst &nstance of Ri'al in Civil Case No. (-)*+)+ sentenced
petitioner to pa, respondent A-la'a Construction and %inance Corporation da"a#es for -reach contract in that after
havin# for"all, and officiall, awarded, pursuant to the results of the usual -iddin# to A-la'a in .ece"-er )+/ the
0contract0 for the construction of its 1an %ernando, 2a 3nion -ranch -uildin# and allowed said contractor to
co""ence the work up to a-out 4a,, )+, al-eit without an, written for"al contract havin# -een e5ecuted, the
Bank failed and refused to proceed with the pro$ect, unless the plans were revised and a lower price were a#reed to
-, A-la'a, the Bank clai"in# that its action was pursuant to the polic, of fiscal restraint announced -, the then new
President of the Philippines on .ece"-er 3*, )+/ and the 4e"orandu" Circular No. ) dated .ece"-er 3), )+/
of the sa"e President.
6he factual -ack#round of this case is related in the followin# portions of the decision of the trial court, which the
Court of Appeals affir"ed without "odification7 t.hq!
1o"eti"e in )+/, defendant Central Bank of the Philippines issued &nvitations to Bid and
&nstructions to Bidders for the purpose of receivin# sealed proposals for the #eneral construction
of its various proposed re#ional offices, includin# the Central Bank re#ional office -uildin# in 1an
%ernando, 2a 3nion.
&n response to the aforesaid &nvitations to Bid, the plaintiff A-la'a Construction and %inance
Corporation, which was one of the 8ualified -idders, su-"itted a -id proposal for the #eneral
construction of defendant9s proposed re#ional office -uildin# in 1an %ernando, 2a 3nion at the
pu-lic -iddin# held on Nove"-er 3, )+/. 6he said proposal was, as re8uired -, the defendant
acco"panied -, a cash -idder9s -ond in the su" of P:;/,***.**.
<n .ece"-er ;, )+/, the 4onetar, Board of the defendant Central Bank of the Philippines, after
evaluatin# all the -id proposals su-"itted durin# the a-ove-"entioned -iddin#, unani"ousl,
voted and approved the award to the plaintiff of the contract for the #eneral construction of
defendant9s proposed re#ional office -uildin# in 1an %ernando, 2a 3nion, for the su" of
P3,;4+,***.** under plaintiff9s Proposal &te" No. :.
Pursuant thereto, on .ece"-er )*, )+/, 4r. Ri'alino 2. 4endo'a, Assistant to the Governor and
concurrentl, the Chair"an of the 4ana#e"ent Buildin# Co""ittee of the defendant Central Bank
of the Philippines, set a tele#ra" to the plaintiff, infor"in# the latter that the contract for the
#eneral construction of defendant9s proposed re#ional office -uildin# in 1an %ernando, 2a 3nion,
had -een awarded to the plaintiff. 6he said tele#ra" was followed -, a for"al letter, also dated
.ece"-er )*, )+/, dul, si#ned -, said 4r. Ri'alino 2. 4endo'a, confir"in# the approval of the
award of the a-ove-stated contract under plaintiff9s Proposal &te" No. : in the a"ount of
P3,;4+,***.**.
3pon receipt of the afore"entioned letter, plaintiff i""ediatel, accepted the said award -, "eans
of a letter dated .ece"-er )/, )+/, where-, plaintiff also re8uested per"ission for its work"en
to enter the site of the pro$ect, -uild a te"porar, shelter and enclosure, and do so"e clearin# $o-
thereat. Accordin#l,, said per"ission was #ranted -, the defendant as e"-odied in its letter dated
=anuar, 4, )+, addressed to the plaintiff..
>ithin five ?/@ da,s fro" receipt -, the plaintiff of the said notice of award, and several ti"es
thereafter 4r. Nico"edes C. A-la'a, an officer of the plaintiff corporation, went personall, to see
4r. Ri'alino 2. 4endo'a at the latter9s Central Bank office to follow up the si#nin# of the
correspondin# contract. A perfor"ance -ond in the total a"ount of P+:,:/*.** ?P:;/,***.** of
which was in cash and P!;,:/*.** in the for" of a suret, -ond@ was su-se8uentl, posted -, the
plaintiff in co"pliance with the a-ove-stated &nstructions to Bidders, which -ond was dul,
accepted -, the defendant.
Pursuant to the per"ission #ranted -, the defendant, as aforesaid, plaintiff co""enced actual
construction work on the pro$ect a-out the "iddle of =anuar,, )+. <n %e-ruar, !, )+, -,
"eans of a for"al letter, defendant re8uested the plaintiff to su-"it a schedule of deliveries of
"aterials which, accordin# to plaintiff9s accepted proposal, shall -e furnished -, the defendant. &n
co"pliance therewith, on %e-ruar, ), )+, plaintiff su-"itted to the defendant the schedule of
deliveries re8uested for.
.urin# the period when the actual construction work on the pro$ect was in pro#ress, 4r.
Nico"edes G. A-la'a had several "eetin#s with 4r. Ri'alino 2. 4endo'a at the latter9s office in
the Central Bank. .urin# those "eetin#s, the, discussed the pro#ress of the construction work
-ein# then undertaken -, the plaintiff of the pro$ects of the defendant in 1an %ernando, 2a 3nion,
includin# the pro#ress of the e5cavation work.
1o"eti"e durin# the earl, part of 4arch, )+, 4r. Ri'alino 2. 4endo'a was at the construction
site of the said pro$ect. >hile he was there, he ad"itted havin# seen pile of soil in the pre"ises. At
that ti"e, the e5cavation work -ein# undertaken -, the plaintiff was a-out :*A co"plete. <n
4arch ::, )+, defendant a#ain wrote the plaintiff, re8uestin# the latter to su-"it the na"e of its
representative authori'ed to si#n the -uildin# contract with the defendant. &n co"pliance with the
said re8uest, plaintiff su-"itted to the defendant the na"e of its dul, authori'ed representative -,
"eans of a letter dated 4arch :4, )+.
A "eetin# called -, the defendant was held at the conference roo" of the Central Bank on 4a,
:*, )+. At the said "eetin#, the defendant, thru %inance 1ecretar, Bduardo Ro"ualde',
announced, a"on# other thin#s, the reduction of the appropriations for the construction of the
defendant9s various proposed re#ional offices, includin# that of the proposed 1an %ernando, 2a
3nion re#ional office -uildin#, the construction of which had alread, -een started -, the plaintiff.
Ce also stated that the Central Bank Associated Architects would -e asked to prepare new plans
and desi#ns -ased on such reduced appropriations. 6he defendant, durin# that sa"e "eetin#, also
advised the plaintiff, thru 4essrs. Nico"edes G. A-la'a and Alfredo G. A-la'a ?who represented
the plaintiff corporation at the said "eetin#@, to stop its construction work on the Central Bank
Re#ional office -uildin# in 1an %ernando, 2a 3nion. 6his was i""ediatel, co"plied with -, the
plaintiff, althou#h its various construction e8uip"ent re"ained in the $o-site. 6he defendant
likewise presented certain offer and proposals to the plaintiff, a"on# which were7 ?a@ the
i""ediate return of plaintiff9s cash -idder9s -ond of P:;/,***.**D ?-@ the pa,"ent of interest on
said -idder9s -ond at ):A per annu"D ?c@ the rei"-urse"ent to the plaintiff of the value of all the
work acco"plished at the siteD ?d@ the enterin# into a ne#otiated contract with the plaintiff on the
-asis of the reduced appropriation for the pro$ect in 8uestionD and ?e@ the rei"-urse"ent of the
pre"iu" on plaintiff9s perfor"ance -ond. Not one of these offers and proposals of the defendant,
however, was accepted -, the plaintiff durin# that "eetin# of 4a, :*, )+.
<n =une 3, )+, plaintiff, thru counsel, wrote the defendant, de"andin# for the for"al e5ecution
of the correspondin# contract, without pre$udice to its clai" for da"a#es. 6he defendant, thru its
.eput, Governor, 4r. A"ado R. Brinas, on =une )/, )+, replied to the said letter of the
plaintiff, where-, the defendant clai"ed that an a#ree"ent was reached -etween the plaintiff and
the defendant durin# the "eetin# held on 4a, :*, )+. <n the followin# da,, however, in its
letter dated =une ), )+, the plaintiff, thru counsel, vehe"entl, denied that said parties
concluded an, a#ree"ent durin# the "eetin# in 8uestion.
<n =ul, /, )+, defendant a#ain offered to return plaintiff9s cash -idder9s -ond in the a"ount of
P:;/,***.**. 6he plaintiff, thru counsel, on =ul, , )+, a#reed to accept the return of the said
cash -ond, without pre$udice, however, to its clai"s as contained in its letters to the defendant
dated =une 3, =une )*, and =une ), )+, and with further reservation re#ardin# pa,"ent of the
correspondin# interest thereon. <n =ul, ;, )+, the said su" of P:;/,***.** was returned -, the
defendant to the plaintiff.
<n =anuar, 3*, )+;, in accordance with the letter of the plaintiff, thru counsel, dated =anuar, :,
)+;, the construction e8uip"ent of the plaintiff were pulled out fro" the construction site, for
which the plaintiff incurred haulin# e5penses.
6he ne#otiations of the parties for the settle"ent of plaintiff9s clai"s out of court proved to -e
futileD hence, the present action was instituted -, plaintiff a#ainst the defendant.0 ?Pp. :4+-:/,
Rec. on Appeal@.
&t "a, -e added that the &nstructions to Bidders on the -asis of which the -id and award in 8uestion were su-"itted
and "ade contained, a"on# others, the followin# provisions7 t.hq!
&B ))3.4 6he acceptance of the Proposal shall -e co""unicated in writin# -, the <wner and no
other act of the <wner shall constitute the acceptance of the Proposal. 6he acceptance of a
Proposal shall -ind the successful -idder to e5ecute the Contract and to -e responsi-le for
li8uidated da"a#es as herein provided. 6he ri#hts and o-li#ations provided for in the Contract
shall -eco"e effective and -indin# upon the parties onl, with its for"al e5ecution.
555 555 555
&B ))4.) 6he -idder whose proposal is accepted will -e re8uired to appear at the <ffice of the
<wner in person, or, if a fir" or corporation, a dul, authori'ed representative shall so appear, and
to e5ecute that contract within five ?/@ da,s after notice that the contract has -een awarded to hi".
%ailure or ne#lect to do so shall constitute a -reach of a#ree"ent effected -, the acceptance of the
Proposal.
555 555 555
&B ))!.) 6he Contractor shall co""ence the work within ten ?)*@ calendar da,s fro" the date he
receives a cop, of the full, e5ecuted Contract, and he shall co"plete the work within the ti"e
specified.0 ?Pp. )!-)+ E /!-/+, Petitioner-Appellant9s Brief.@
&n the li#ht of these facts, petitioner has "ade the followin# assi#n"ent of errors7 t.hq!
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B, Petitioner-Appellant9s Brief.@
3nder the first assi#ned error, petitioner denotes the "a$or part of its effort to the discussion of its proposition that
there could -e no perfected contract in this case, ?contrar, to the conclusion of the courts -elow@ -ecause there is no
showin# of co"pliance, and in fact, there has -een no co"pliance with the re8uire"ent that there "ust -e a
certification of the availa-ilit, of funds -, the Auditor General pursuant to 1ection *; of the Revised
Ad"inistrative Code which provides thus7 t.hq!
1ection *;. Certificate showin# appropriation to "eet contract. J B5cept in the case of a
contract for personal service or for supplies to -e carried in stock, no contract involvin# an
e5penditure -, the National Govern"ent of three thousand pesos or "ore shall -e entered into or
authori'ed until the Auditor General shall have certified to the officer enterin# into such o-li#ation
that funds have -een dul, appropriated for such purpose and that the a"ount necessar, to cover
the proposed contract is availa-le for e5penditure on account thereof. >hen application is "ade to
the Auditor General for the certificate herein re8uired, a cop, of the proposed contract or
a#ree"ent shall -e su-"itted to hi" acco"panied -, a state"ent in writin# fro" the officer
"akin# the application showin# all o-li#ations not ,et presented for audit which have -een
incurred a#ainst the appropriation to which the contract in 8uestion would -e char#ea-leD and such
certificate, when si#ned -, the Auditor, shall -e attached to and -eco"e a part of the proposed
contract, and the su" so certified shall not thereafter -e availa-le for e5penditure for an, other
purposes until the Govern"ent is dischar#ed fro" the contract in 8uestion.
B5cept in the case of a contract for supplies to -e carried in stock, no contract involvin# the
e5penditure -, an, province, "unicipalit,, chartered cit,, or "unicipal district of two thousand
pesos or "ore shall -e entered into or authori'ed until the treasurer of the political division
concerned shall have certified to the officer enterin# into such contract that funds have -een dul,
appropriated for such purpose and that the a"ount necessar, to cover the proposed contract is
availa-le for e5penditure on account thereof. 1uch certificate, when si#ned -, the said treasurer,
shall -e attached to and -eco"e part of the proposed contract and the su" so certified shall not
thereafter -e availa-le for e5penditure for an, other purpose until the contract in 8uestion is
lawfull, a-ro#ated or dischar#ed.
%or the purpose of "akin# the certificate hereina-ove re8uired ninet, per centu" of the esti"ated
revenues and receipts which should accrue durin# the current fiscal ,ear -ut which are ,et
uncollected, shall -e dee"ed to -e in the treasur, of the particular -ranch of the Govern"ent
a#ainst which the o-li#ation in 8uestion would create a char#e.0 ?Pp. :3-:/, Petitioner-Appellant9s
Brief.@
&t is contended that in view of such o"ission and considerin# the provisions of 1ection *! of the sa"e code to the
effect that 0a purported contract entered into contrar, to the re8uire"ents of the ne5t precedin# section hereof shall
-e wholl, void0, 0no contract -etween the petitioner and respondent A-la'a Construction and %inance Corporation
for the #eneral construction of the proposed re#ional office -uildin# of the Central Bank in 1an %ernando, 2a 3nion,
was ever perfected -ecause onl, the first sta#e, that is the award of the contract to the lowest responsi-le -idder,
respondent A-la'a Construction and %inance Corporation, was co"pleted.0 ?p. :+, Petitioner-Appellant9s Brief.@ And
in support of this pose, petitioner relies heavil, on "an C. "ee & Co. vs. #right thus7 t.hq!
6he aforesaid re8uire"ents of the Revised Ad"inistrative Code for the perfection of #overn"ent
contracts have -een upheld -, this Conora-le Court in the case of "an C. "ee Co. vs. #right, /3
Phil. );:, in which case it was held that the award of the contract to the lowest -idder does not
a"ount to enterin# into the contract -ecause of the re8uire"ent of 1ection *; of the Revised
Ad"inistrative Code that a cop, of the proposed contract shall -e su-"itted to the Auditor
General to#ether with a re8uest for the availa-ilit, of funds to cover the proposed contract. 6hus,
this Conora-le Court held7 t.hq!
96o award the contract to the lowest responsi-le -idder is not the e8uivalent of
enterin# into the contract. 1ection *; of the Ad"inistrative Code re8uires that a
cop, of the proposed contract shall -e su-"itted alon# with the re8uest for the
certificate of availa-ilit, of funds, -ut there could -e no proposed contract to -e
su-"itted until after the award was "ade.9
And to #uide #overn"ent authorities in the lettin# of #overn"ent contracts, this Conora-le Court,
in said case of 6an C. 6ee vs. >ri#ht, supra, laid down the procedure which should -e followed, as
follows7 t.hq!
KPR<CB.3RB >C&CC 1C<32. BB %<22<>B. &N 6CB 2B66&NG <%
C<N6RAC61 %<R &N132AR ><RF1. J 6he procedure which should -e
followed in the lettin# of contracts for &nsular works is the followin#7 %irst, there
is an award of the contract -, the .irector of Pu-lic >orks to the lowest
responsi-le -idder. 1econd, there is a certificate of availa-ilit, of funds to -e
o-tained fro" the &nsular Auditor, and in so"e cases fro" the &nsular 6reasurer,
to cover the proposed contract. And third, there is a contract to -e e5ecuted on
-ehalf of the Govern"ent -, the .irector of Pu-lic >orks with the approval of
the depart"ent head.90 ?Pp. :;-:!, Petitioner-Appellant9s Brief.@
6he contention is without "erit. 6o start with, the record reveals that it is "ore of an afterthou#ht. Respondent never
raised this 8uestion whether in its pleadin#s or at the hearin#s in the trial court. >e have also read its -rief in the
appellate court and no "ention is "ade therein of this point. Not even in its "e"orandu" su-"itted to that court in
lieu of oral ar#u"ent is there an, discussion thereof, even as it appears that e"phasis was #iven therein to various
portions of the Revised 4anual of &nstructions to 6reasurers re#ardin# the perfection and constitution of pu-lic
contracts. &n fact, reference was "ade therein to Ad"inistrative <rder No. :+* of the President of the Philippines,
dated %e-ruar, /, )+/+, re8uirin# 0all contracts of whatever nature involvin# P)*,*** or "ore to -e entered into -,
all -ureaus and offices, ... includin# the ... Central Bank ... shall -e su-"itted to the Auditor General for e5a"ination
and review -efore the sa"e are perfected andLor consu""ated, etc.0, without "entionin#, however, that said
ad"inistrative order was no lon#er in force, the sa"e havin# -een revoked on =anuar, );, )+4 -, President
4acapa#al under Ad"inistrative <rder No. !), s. )+4.
Cence, if onl, for the reason that it is a fa"iliar rule in procedure that defenses not pleaded in the answer "a, not -e
raised for the first ti"e on appeal, petitioner9s position cannot -e sustained. &ndeed, in the Court of Appeals,
petitioner could onl, -rin# up such 8uestions as are related to the issues "ade -, the parties in their pleadin#s,
particularl, where factual "atters "a, -e involved, -ecause to per"it a part, to chan#e his theor, on appeal 0would
-e unfair to the adverse part,.0 ?&&, 4oran, Rules of Court, p. /*/, )+;* ed.@ %urther"ore, under 1ection ; of Rule
/), the appellate court cannot consider an, error of the lower court 0unless stated in the assi#n"ent of errors and
properl, ar#ued in the -rief.0
Bven prescindin# fro" this consideration of -elatedness, however, it is <ur considered view that contracts entered
into -, petitioner Central Bank are not within the conte"plation of 1ections *; and *! cited -, it. &""ediatel, to
-e noted, 1ection *; specificall, refers to 0e5penditure?s@ of the National Govern"ent0 and that the ter" 0National
Govern"ent0 "a, not -e dee"ed to include the Central Bank. 3nder the Ad"inistrative Code itself, the ter"
0National Govern"ent0 refers onl, to the central #overn"ent, consistin# of the le#islative, e5ecutive and $udicial
depart"ents of the #overn"ent, as distin#uished fro" local #overn"ents and other #overn"ental entities and is not
s,non,"ous, therefore, with the ter"s 06he Govern"ent of the Repu-lic of the Philippines0 or 0Philippine
Govern"ent0, which are the e5pressions -road enou#h to include not onl, the central #overn"ent -ut also the
provincial and "unicipal #overn"ents, chartered cities and other #overn"ent-controlled corporations or a#encies,
like the Central Bank. ?&, 4artin, Ad"inistrative Code, p. )/.@
6o -e sure the Central Bank is a #overn"ent instru"entalit,. But it was created as an autono"ous -od, corporate to
-e #overned -, the provisions of its charter, Repu-lic Act :/, 0to ad"inister the "onetar, and -ankin# s,ste" of
the Repu-lic.0 ?1ec. )@ As such, it is authori'ed 0to adopt, alter and use a corporate seal which shall -e $udiciall,
noticedD to "ake contractsD to lease or own real and personal propert,, and to sell or otherwise dispose of the sa"eD
to sue and -e suedD and otherwise to do and perfor" an, and all thin#s that "a, -e necessar, or proper to carr, out
the purposes of this Act. 6he Central Bank "a, ac8uire and hold such assets and incur such lia-ilities as result
directl, fro" operations authori'ed -, the provisions of this Act, or as are essential to the proper conduct of such
operations.0 ?1ec. 4@ &t has capital of its own and operates under a -ud#et prepared -, its own 4onetar, Board and
otherwise appropriates "one, for its operations and other e5penditures independentl, of the national -ud#et. &t does
not depend on the National Govern"ent for the financin# of its operationsD it is the National Govern"ent that
occasionall, resorts to it for needed -ud#etar, acco""odations. 3nder 1ection )4 of the Bank9s charter, the
4onetar, Board "a, authori'e such e5penditures -, the Central Bank as are in the interest of the effective
ad"inistration and operation of the Bank.0 &ts prero#ative to incur such lia-ilities and e5penditures is not su-$ect to
an, prere8uisite found in an, statute or re#ulation not e5pressl, applica-le to it. Relevantl, to the issues in this case,
it is not su-$ect, like the 1ocial 1ecurit, Co""ission, to 1ection )+*) and related provisions of the Revised
Ad"inistrative Code which re8uire national #overn"ent constructions to -e done -, or under the supervision of the
Bureau of Pu-lic >orks. ?<p. of the 1ec. of =ustice No. +:, 1eries of )+*@ %or these reasons, the provisions of the
Revised Ad"inistrative Code invoked -, the Bank do not appl, to it. 6o <ur knowled#e, in no other instance has the
Bank ever considered itself su-$ect thereto.
&n $o%el vs. Cit& of 'anila, 4; Phil. )+, this Court adopted a restrictive construction of 1ection *; of the
Ad"inistrative Code thus7
6he second 8uestion to -e considered has reference to the applica-ilit, of section *; of the Ad"inistrative Code to
contracts "ade -, the Cit, of 4anila. &n the second para#raph of said section it is declared that no contract
involvin# the e5penditure -, an, province, "unicipalit,, township, or settle"ent of two thousand pesos or "ore
shall -e entered into or authori'ed until the treasurer of the political division concerned shall have certified to the
officer enterin# into such contract that funds have -een dul, appropriated for such purpose and that the a"ount
necessar, to cover the proposed contract is availa-le for e5penditure on account thereof. &t is ad"itted that no such
certificate was "ade -, the treasurer of 4anila at the ti"e the contract now in 8uestion was "ade. >e are of the
opinion that the provision cited has no application to contracts of a chartered cit,, such as the Cit, of 4anila. 3pon
e5a"inin# said provision ?sec. *;@ it will -e found that the ter" chartered cit,, or other si"ilar e5pression, such as
would include the Cit, of 4anila, is not usedD and it is 8uite "anifest fro" the careful use of ter"s in said section
that chartered cities were intended to -e e5cluded. &n this connection the definitions of 0province,0 0"unicipalit,,0
and 0chartered cit,,0 #iven in section : of the Ad"inistrative Code are instructive. 6he circu"stance that for certain
purposes the Cit, of 4anila has the status -oth of a province and a "unicipalit, ?as is true in the distri-ution of
revenue@ is not inconsistent with this conclusion.0
1

>e perceive no valid reason wh, the Court should not follow the sa"e view now in respect to the first para#raph of
the section -, confir"in# its application onl, to the offices co"prised within the ter" National Govern"ent as
a-ove defined, particularl, insofar as #overn"ent-owned or created corporations or entities havin# powers to "ake
e5penditures and to incur lia-ilities -, virtue of their own corporate authorit, independentl, of the national or local
le#islative -odies, as in the case of the petitioner herein, are concerned. >henever necessar,, the 4onetar, Board,
like an, other corporate -oard, "akes all re8uired appropriations directl, fro" the funds of the Bank and does not
need an, official state"ent of availa-ilit, fro" its treasurer or auditor and without su-"ittin# an, papers to, "uch
less securin# the approval of the Auditor General or an, outside authorit, -efore doin# so. &ndeed, this is readil, to
-e inferred fro" the repeal alread, "entioned earlier of Ad"inistrative <rder No. :+*, s. )+/+, which petitioner
tried to invoke, overlookin# perhaps such repeal. &n other words, -, that repeal, the re8uire"ent that the Central
Bank should su-"it to the Auditor General for e5a"ination and review -efore contracts involvin# P)*,*** or "ore
to -e entered into -, it 0-efore the sa"e are perfected andLor consu""ated0 had alread, -een eli"inated at the ti"e
the transaction herein involved took place. Conse8uentl,, the point of invalidit, pressed, -elatedl, at that, -,
petitioner has no le# to stand on.
6he other "ain contention of petitioner is that the purported or alle#ed contract -ein# relied upon -, respondent
never reached the sta#e of perfection which would "ake it -indin# upon the parties and entitle either of the" to sue
for specific perfor"ance in case of -reach thereof. &n this connection, since the transaction herein involved arose
fro" the award of a construction contract
2
-, a #overn"ent corporation and the atte"pt on its part to discontinue
with the construction several "onths after such award had -een accepted -, the contractor and after the latter had
alread, co""enced the work without an, o-$ection on the part of the corporation, so "uch so that entr, into the site
for the purpose was upon e5press per"ission fro" it, -ut -efore an, written contract has -een e5ecuted, it is
prefera-le that certain pertinent points -e clarified for the proper resolution of the issue -etween the parties here and
the #eneral #uidance of all who "i#ht -e si"ilarl, situated.
Petitioner -uttresses its position in re#ard to this issue on the provisions earlier 8uoted in this opinion of the
&nstruction to Bidders7 t.hq!
&B ))3.4 6he acceptance of the Proposal shall -e co""unicated in writin# -, the <wner and no
other act of the <wner shall constitute the acceptance of the Proposal. 6he acceptance of a
Proposal shall -ind the successful -idder to e5ecute the Contract and to -e responsi-le for
li8uidated da"a#es as herein provided. 6he ri#hts and o-li#ations provided for in the Contract
shall -eco"e effective and -indin# upon the parties onl, with its for"al e5ecution.
555 555 555
&B ))!.) 6he Contractor shall co""ence the work within ten ?)*@ calendar da,s fro" the date he
receives a cop, of the full, e5ecuted Contract, and he shall co"plete the work within the ti"e
specified.0 ?Pp. )!-)+, Petitioner-Appellant9s Brief.@
Petitioner insists that under these provisions, the ri#hts and o-li#ations of the Bank and A-la'a could -eco"e
effective and -indin# onl, upon the e5ecution of the for"al contract, and since ad"ittedl, no for"al contract has ,et
-een si#ned -, the parties herein, there is ,et no perfected contract to speak of and respondent has, therefore, no
cause of action a#ainst the Bank. And in refutation of respondent9s ar#u"ent that it had alread, started the work with
so"e clearin# $o- and foundation e5cavations, which has never -een stopped -, petitioner who had previousl,
#iven e5press per"ission to respondent to enter the $o-site, -uild a te"porar, shelter and enclosures thereon,
petitioner counters that under the a-ove instructions, respondent is supposed to co""ence the work 0within ten ?)*@
calendar da,s fro" the date he receives a cop, of the full, e5ecuted Contract,0 and for said respondent to have
started actual construction work -efore an, contract has -een si#ned was unauthori'ed and was conse8uentl,
undertaken at his own risk, all the a-ove circu"stances indicative of estoppel notwithstandin#.
>e are not persuaded that petitioner9s posture confor"s with law and e8uit,. Accordin# to Para#raph &B ))4.) of the
&nstructions to Bidders, A-la'a was 0re8uired to appear in the office of the <wner ?the Bank@ in person, or, if a fir"
or corporation, a dul, authori'ed representative ?thereof@, and to e5ecute the contract within five ?/@ da,s after
notice that the contract has -een awarded to hi". Failure or negle(t to do so shall (onstitute a %rea(h of agree)ent
effe(ted %& the a((eptan(e of the *roposal.0 6here can -e no other "eanin# of this provision than that the Bank9s
acceptance of the -id of respondent A-la'a effected an actiona-le a#ree"ent -etween the". >e cannot read it in the
unilateral sense su##ested -, petitioner that it -ound onl, the contractor, without an, correspondin# responsi-ilit, or
o-li#ation at all on the part of the Bank. An a#ree"ent presupposes a "eetin# of "inds and when that point is
reached in the ne#otiations -etween two parties intendin# to enter into a contract, the purported contract is dee"ed
perfected and none of the" "a, thereafter disen#a#e hi"self therefro" without -ein# lia-le to the other in an action
for specific perfor"ance.
6he rather a"-i#uous ter"s of Para#raph &B ))3.4 of the &nstructions to Bidders relied upon -, petitioner have to -e
reconciled with the other para#raphs thereof to avoid lack of "utualit, in the relation -etween the parties. 6his
invoked para#raph stipulates that 0the acceptance of ?respondent9s@ Proposal shall -ind said respondent to e5ecute
the Contract and to -e responsi-le for li8uidated da"a#es as herein provided.0 And ,et, even if the contractor is
read, and willin# to e5ecute the for"al contract within the five ?/@ da, period #iven to hi", petitioner now clai"s
that under the invoked provision, it could refuse to e5ecute such contract and still -e a-solutel, free fro" an,
lia-ilit, to the contractor who, in the "eanti"e, has to "ake necessar, arran#e"ents and incur e5penditures in order
to -e a-le to co""ence work 0within ten ?)*@ da,s fro" the date he receives a cop, of the full, e5ecuted Contract,0
or -e responsi-le for da"a#es for dela,. 6he unfairness of such a view is too evident to -e $ustified -, the
invocation of the principle that ever, part, to a contract who is sui +uris and who has entered into it voluntaril, and
with full knowled#e of its unfavora-le provisions "a, not su-se8uentl, co"plain a-out the" when the, are -ein#
enforced, if onl, -ecause there are other portions of the &nstruction to Bidders which indicate the contrar,. Certainl,,
>e cannot sanction that in the a-sence of unavoida-le $ust reasons, the Bank could si"pl, refuse to e5ecute the
contract and there-, avoid it entirel,. Bven a #overn"ent owned corporation "a, not under the #uise of protectin#
the pu-lic interest uncere"oniousl, disre#ard contractual co""it"ents to the pre$udice of the other part,.
<therwise, the door would -e wide open to a-uses and ano"alies "ore detri"ental to pu-lic interest. &f there could
-e instances wherein a #overn"ent corporation "a, $ustifia-l, withdraw fro" a co""it"ent as a conse8uence of
"ore para"ount considerations, the case at -ar is not, for the reasons alread, #iven, one of the".
As >e see it then, contrar, to the contention of the Bank, the provision it is citin# "a, not -e considered as
deter"inative of the perfection of the contract here in 8uestion. 1aid provision onl, "eans that as re#ards the
violation of an, particular ter" or condition to -e contained in the for"al contract, the correspondin# action therefor
cannot arise until after the writin# has -een full, e5ecuted. 6hus, after the Proposal of respondent was accepted -,
the Bank thru its tele#ra" and letter -oth dated .ece"-er )*, )+/ and respondent in turn accepted the award -, its
letter of .ece"-er )/, )+/, -oth parties -eca"e -ound to proceed with the su-se8uent steps needed to for"ali'e
and consu""ate their a#ree"ent. %ailure on the part of either of the" to do so, entities the other to co"pensation
for the resultin# da"a#es. 6o such effect was the rulin# of this Court in Halencia vs. R%C )*3 Phil. 444. >e held
therein that the award of a contract to a -idder constitutes an acceptance of said -idder9s proposal and that 0the effect
of said acceptance was to perfect a contract, upon notice of the award to ?the -idder@0. ?at p. 4/*@ >e further held
therein that the -idder9s 0failure to ?si#n the correspondin# contract@ do not relieve hi" of the o-li#ation arisin# fro"
the un8ualified acceptance of his offer. 4uch less did it affect the e5istence of a contract -etween hi" and
respondent0. ?at p. 4/:@
&t is neither $ust nor e8uita-le that Halencia should -e construed to have sanctioned a one-sided view of the
perfection of contracts in the sense that the acceptance of a -id -, a dul, authori'ed official of a #overn"ent-owned
corporation, financiall, and otherwise autono"ous -oth fro" the National Govern"ent and the Bureau of Pu-lic
>orks, insofar as its construction contracts are concerned, -inds onl, the -idder and not the corporation until the
for"al e5ecution of the correspondin# written contract.
1uch unfairness and ine8uit, would even -e "ore evident in the case at -ar, if >e were to uphold petitioner9s pose.
Pertinentl, to the point under consideration, the trial court found as follows7
6o deter"ine the a"ount of da"a#es recovera-le fro" the defendant, plaintiff9s clai" for actual da"a#es in the su"
of P:+!,433.3/, as hereina-ove stated, and the reco""endation of 4essrs. A"-rosio R. %lores and Ricardo I.
4a,u#a, as contained in their separate reports ?B5hs. 0)30 and 0)/0@, in the a"ounts of P)/4,*;/.** and
P)4;,/**.**, respectivel,, should -e taken into account.
6here is evidence on record showin# that plaintiff incurred the su" of P4!,;;*.3* for the preparation of the $o-site,
construction of -ode#as, fences field offices, workin# sheds, and work"en9s 8uartersD that the value of the
e5cavation work acco"plished -, the plaintiff at the site was P))3,!**.**D that the rental of the various construction
e8uip"ent of the plaintiff fro" the stoppa#e of work until the re"oval thereof fro" the $o-site would a"ount to
P;!,/4*.** ?B5hs. 0F0 - 0F-l0@D that the interest on the cash -ond of P:;/,***.** fro" Nove"-er 3, )+/ to =ul, ;,
)+ at ):A per annu" would -e P::,***.**D that for re"ovin# said construction e8uip"ent fro" the $o-site to
4anila, plaintiff paid a haulin# fee of P;**.** ?B5hs. 020 - 02-)0 @D that for the perfor"ance -ond that the plaintiff
posted as re8uired under its contract with the defendant, the for"er was o-li#ed to pa, a pre"iu" of P:,:).//D and
that the plaintiff was likewise "ade to incur the su" of P3:,4*./*, representin# the 3A contractor9s ta5 ?B5hs.
0AA0 - 0A-l0@. 6he ite"i'ed list of all these e5penditures, totallin# P:+!,433.3/ is attached to the records of this
case ?Anne5 0B0, Co"plaint@ and for"s part of the evidence of the plaintiff. 4r. Nico"edes G. A-la'a, the witness
for the plaintiff, properl, identified said docu"ent and affir"ed the contents thereof when he testified durin# the
hearin#. 6he sa"e witness likewise e5plained in detail the various fi#ures contained therein, and identified the
correspondin# supportin# papers.
&t is noteworth,, in this connection, that there is nothin# in the records that would show that the defendant assailed
the accurac, andLor reasona-leness of the fi#ures presented -, the plaintiffD neither does it appear that the defendant
offered an, evidence to refute said fi#ures.
>hile it is clai"ed -, the defendant that the plaintiff incurred a total e5pense of onl, P)/4,*;/.** accordin# to the
report of 4r. A"-rosio R. %lores, or P)4;,/**.**, accordin# to the report of 4r. Ricardo I. 4a,u#a, the Court finds
said esti"ates to -e inaccurate. 6o cite onl, an instance, in esti"atin#, the value of the e5cavation work, the
defendant "erel, "easured the depth, len#th and width of the e5cavated, area which was su-"er#ed in water,
without ascertainin# the volu"e of rock and the volu"e of earth actuall, e5cavated as was done -, the plaintiff who
prepared a detailed plan showin# the profile of the e5cavation work perfor"ed in the site ?B5h. 0B0@. 2ikewise, the
unit "easure adopted -, the defendant was in cu-ic "eter while it should -e in cu-ic ,ard. Also the unit price used
-, the defendant was onl, P!.;/ for rock e5cavation while it should -e P)*.** per cu-ic ,ardD and onl, P4.+/ for
earth e5cavation while it should -e P/./* per cu-ic ,ard as clearl, indicated in plaintiff9s proposal ?Anne5 0A0,
Co"plaintD sa"e as Anne5 0)0, Answer@. 6he Court, therefore, can not #ive credence to defendant9s, afore"entioned
esti"ates in view of their evident inaccuracies.
6he Court finds fro" the evidence adduced that Plaintiff clai" for actual da"a#es in the su" of P:+!,433.3/ is
"eritorious.
6he Bulk of plaintiffs clai"s consists of e5pected profit which it failed to reali'e due to the -reach of the contract in
8uestion -, the defendant. As previousl, stated, the plaintiff seeks to recover the a"ount of P!)4,)+*.** -, wa, of
unreali'ed e5pected profit. 6his fi#ure represents )!A of P4,/:3,:;/.** which is the esti"ated direct cost of the
su-$ect pro$ect.
As it has -een esta-lished -, the evidence that the defendant in fact was #uilt, of -reach of contract and, therefore,
lia-le for da"a#es ?Art. ));*, New Civil Code@, the Court finds that the plaintiff is entitled to recover fro" the
defendant unreali'ed e5pected profit as part of the actual or co"pensator, da"a#es. &nde"nification for da"a#es
shall co"prehend not onl, the value of the loss suffered, -ut also that of the profits which the o-li#ee failed to
o-tain ?Art. ::**, New Civil Code@.
>here a part, is #uilt, of -reach of contract, the other part, is entitled to recover the profit which the latter would
have -een a-le to "ake had the contract -een perfor"ed ?*az *. ,rrieta, et al., plaintiffs-appellees, vs. .ational
/i(e Corporation defendant-appellant, 0./. .o. L-12342, pro)ulgated on 5anuar& 61, 17348 Viven(io Cerrano,
plaintiff-appellee, vs. "an Chu(o, defendant-appellant, 3! Phil. 3+:@.
Re#ardin# the e5pected profit, a nu"-er of 8uestions will have to -e answered7 &s the )!A unreali'ed e5pected
profit -ein# clai"ed -, the plaintiff reasona-leM >ould the plaintiff -e entitled to the whole a"ount of said e5pected
profit althou#h there was onl, partial perfor"ance of the contractM >ould the )!A e5pected profit -e -ased on the
esti"ated direct cost of the su-$ect in the a"ount of P4,/:3,:;/.**, or on plaintiff9s -id proposal of P3,;4+,***.**M
<n the 8uestion of reasona-leness of the )!A e5pected profit, the Court noted that accordin# to defendant9s own
e5pert witness, 4r. A"-rosio R. %lores, :/A contractor9s profit for a pro$ect si"ilar in "a#nitude as the one
involved in the present case would -e a"ple and reasona-le. Plaintiff9s witness, 4r. Nico"edes G. A-la'a, an
e5perienced civil en#ineer who has -een activel, en#a#ed in the construction -usiness, testified that )/A to :*A
contractor9s profit would -e in accordance with the standard en#ineerin# practice. Considerin# the t,pe of the pro$ect
involved in this case, he stated, the contractor9s profit was placed at )!A. 6akin# into consideration the fact that this
percenta#e of profit is even lower than what defendant9s witness considered to -e a"ple and reasona-le, the Court
-elieves that the reasona-le percenta#e should -e )!A inas"uch as the actual work was not done co"pletel, and the
plaintiff has not invested the whole a"ount of "one, called for -, the pro$ect.0 ?Pp. :3-:!, Record on Appeal.@
6hese findin#s have not -een shown to 3s to -e erroneous. And additional and clarificator, details, which >e find
to -e ade8uatel, supported -, the record, are stated in Respondents9 -rief thus7 t.hq!
:3. &n a letter dated =anuar, 4, )+, petitioner Central Bank, throu#h the sa"e 4r. 4endo'a, to
this re8uest of respondent A-la'a. ?Anne5 0.-)0 to the *artial 9tipulation of Fa(ts, R.A., p. )4@.
:4. Actin# upon this written per"ission, respondent A-la'a i""ediatel, -rou#ht its "en and
e8uip"ent fro" 4anila to the construction site in 1an %ernando, 2a 3nion, and pro"ptl,
co""enced construction work thereat. 6his work, consisted of the settin# up of an enclosure
around the site, the -uildin# of te"porar, shelter for its work"en, and the "akin# of the necessar,
e5cavation works. ?Co""issioner9s Report, R.A., p. )!)@.
:/. %ollowin# the co""ence"ent of such construction work, petitioner Central Bank, throu#h a
letter dated %e-ruar, !, )+, for)all& requested respondent ,%laza to su%)it to petitioner the
followin#7t.hq!
?a@ A schedule of deliveries of "aterial which, under the ter"s of respondent
A-la'a9s approved proposal, were to -e furnished -, petitioner.
?-@ A ti"e-ta-le for the acco"plish"ent of the construction work.
:n short, as earl& as Fe%ruar& ;, 1733, or )ore than three )onths prior to
petitioner<s repudiation of the (ontra(t in question the latter =petitioner> alread&
too? the a%ove positive steps it (o)plian(e ith its on o%ligations under the
(ontra(t.
:. Actin# upon petitioner9s a-ove letter of %e-ruar, !, )+, on %e-ruar, ), )+, respondent
A-la'a su-"itted the schedule of deliveries re8uested -, petitioner. ?Co""issioner9s Report,
R.A., p. )!:D .ecision id., :/:D also B5hs. 0.0 to 0.-;0, inclusive.@
:;. .urin# the period of actual construction, respondent A-la'a, on several occasions, actuall,
discussed the pro#ress of the work with 4r. 4endo'a. &n addition, in 4arch )+, the latter ?4r.
4endo'a@ personall, visited the construction site. 6here he saw the work which respondent had -,
that ti"e alread, acco"plished which consisted of the co"pletion of appro5i"atel, :*A of the
necessar, e5cavation works. ?Co))issioner<s /eport, R.A., p. )!:D @e(ision, id., p. :/:@.
:!. %ollowin# 4r. 4endo'a9s visit at the construction site, or "ore specificall, on 4arch ::,
)+, the latter ?4endo'a@ wrote to respondent A-la'a, instructin# the latter to for"all, desi#nate
the person to represent the corporation at the si#nin# of the for"al construction contract. ?B5h.
0C0D also t.s.n., pp. ))+-):), .ece"-er )!, )+;@.
:+. B, a letter dated 4arch :4, )+, respondent A-la'a pro"ptl, co"plied with the a-ove
re8uest. ?B5h. 0&0D also t.s.n., pp ):)-):3, .ece"-er )!, )+;@.
3*. 1u-se8uentl,, respondent A-la'a posted the re8uired perfor"ance #uarant, -ond in the total
a"ount of P+:,:/*.**, consistin# of ?a@ a cash -ond in the a"ount of P:;/,***.**, and ?-@ a
suret, -ond, P1&C Bond No. B-:/:-42, dated 4a, )+, )+, in the a"ount of P!;,:/*.**. &n
this connection, it is i"portant to note that the spe(ifi( purpose of this %ond as to guarantee Athe
faithful *erfor)an(e of the Contra(tA %& respondent ,%laza. =*artial 9tipulation of Fa(ts, par. ,
R.A., p. )4)@. "his perfor)an(e guarant& %ond as dul& a((epted %& petitioner.?&d.@
3). Cowever, on 4a, :*, )+, petitioner Central Bank called for a "eetin# with representatives
of respondent A-la'a and another contractor. 6his "eetin# was held at the Conference Roo" of
the Central Bank Buildin#. At this "eetin#, then %inance 1ecretar, Bduardo Ro"ualde', who
acted as the representative of petitioner, announced that the 4onetar, Board had decided to reduce
the appropriations for the various proposed Central Bank re#ional office -uildin#s, in(luding the
one for 9an Fernando, La Bnion.
3:. &n view of this decision, 1ecretar, Ro"ualde' infor"ed respondent A-la'a that new plans and
desi#ns for the proposed re#ional office -uildin# in 1an %ernando would have to -e drawn up to
take account of the reduction in appropriation. 1ecretar, Ro"ualde' then advised respondent to
suspend work at the construction site in 1an %ernando in the "eanwhile. ?.ecision, R.A., pp. :/3-
:/4@.
33. After "akin# the a-ove announce"ents, 1ecretar, Ro"ualde' proposed that all e5istin#
contracts previousl, entered into -etween petitioner Central Bank and the several winnin#
contractors ?a"on# the" -ein# respondent A-la'a@ -e considered set aside.
34. <-viousl, to induce acceptance of the a-ove proposal, 1ecretar, Ro"ualde' offered the
followin# concessions to respondent A-la'a7 t.hq!
?a@ 6hat its cash -ond in the a"ount of P:;/,***.** -e released i""ediatel,,
and that interest -e paid thereon at the rate of ):A per annu".
?-@ 6hat respondent A-la'a -e rei"-ursed for e5penses incurred for the
pre"iu"s on the perfor"ance -ond which it posted, and which petitioner had
alread, accepted. ?.ecision, R.A., pp. :/3-:/4@.
3/. &n addition, 1ecretar, Ro"ualde' also proposed the conclusion of a new contract with
respondent A-la'a for the construction of a "ore "odest re#ional office -uildin# at 1an %ernando,
2a 3nion, on a negotiated -asis. Cowever, the sincerit, and feasi-ilit, of this proposal was
rendered du-ious -, a caveat attached to it, as follows7 t.hq!
94. #here auditing regulations ould per)it, the Central Bank would enter into
a ne#otiated contract with the said corporation ?A-la'a@ for the construction
work on the -uildin# on the -asis of the revised esti"ates.9 ?,nneC A;A to
,nser, R.A., p. +/@.
3. 6he revised cost fi5ed for this proposed alternative re#ional office -uildin# was fi5ed at a
"a5i"u" of P3,***,***.** ?co"pared to P3,;4+,***.** under the contract ori#inall, awarded to
respondent@. ?,nneC A3-,A to ,nser, R.A., p. !;@.
3;. Needless perhaps to state, respondent A-la'a re$ected the a-ove proposals ?pars. 34 and 3/,
supra.@, and on =une 3, )+, throu#h counsel, wrote to petitioner de"andin# the for"al e5ecution
of the contract previousl, awarded to it, or in the alternative, to pa, 0all da"a#es and e5penses
suffered -, ?it@ in the total a"ount of P),)!),+/*.** ... 0?,nneC ADA to ,nser, R.A., pp. !+-+)D
@e(ision, id., p. :/4@.
3!. &n a letter dated =une )/, )+, petitioner Central Bank, throu#h .eput, Governor A"ado R.
Brinas, replied to respondent A-la'a9s de"and den,in# an, lia-ilit, on the -asis of the followin#
clai"7 t.hq!
K?6hat, alle#edl,@ in line with the a#ree"ent ... reached -etween the Central
Bank and A-la'a Construction and %inance Corporation at a "eetin# held ... on
4a, :*, )+,9 0whatever a#ree"ents "i#ht have -een previousl, a#reed upon
-etween ?petitioner and respondent@ would -e considered set aside.0 ?@e(ision,
R.A., p. ://D Anne5 0!0 to Answer, id., pp. +3-+.@
3+. 6he a-ove clai" was, however, pro"ptl, and pere"ptoril, denied -, respondent A-la'a,
throu#h counsel, in a letter dated =une ), )+. ?*artial 9tipulation of Fa(ts, par. +, R.A., p. )4:,
also Anne5 0G0 thereofD Co))issioner<s /eport, R.A., p. )!/D @e(ision, id., p. ://.@0 ?Appellee9s
Brief, pars. :3 to 3+, pp. )4-)+.@
None of these facts is seriousl, or in an, event sufficientl, denied in petitioner9s repl, -rief.
Considerin# all these facts, it is 8uite o-vious that the Bank9s insistence now re#ardin# the need for the e5ecution of
the for"al contract co"es a little too late to -e -elieva-le. Bven assu"in# arguendo that the Revised 4anual of
&nstructions to 6reasurers were applica-le to the Central Bank, which is dou-tful, considerin# that under the
provisions of its charter alread, referred to earlier, dis-urse"ents and e5penditures of the Bank are supposed to -e
#overned -, rules and re#ulations pro"ul#ated -, the 4onetar, Board, in this particular case, the attitude and
actuations then of the Bank in relation to the work -ein# done -, A-la'a prior to 4a, :*, )+ clearl, indicate that
-oth parties assu"ed that the actual e5ecution of the written contract is a "ere for"alit, which could not "ateriall,
affect their respective contractual ri#hts and o-li#ations. &n le#al effect, therefore, the Bank "ust -e considered as
havin# waived such re8uire"ent.
6o -e "ore concrete, fro" .ece"-er )/, )+/, when A-la'a accepted the award of the contract in 8uestion, -oth
parties were supposed to have seen to it that the for"al contract were dul, si#ned. 3nder the &nstructions to Bidders,
A-la'a was under o-li#ation to si#n the sa"e within five ?/@ da,s fro" notice of the award, and so, he called on the
Bank at various ti"es for that purpose. 6he Bank never indicated until 4a,, )+ that it would not co"pl,. <n the
contrar,, on %e-ruar, !, )+, A-la'a was re8uested to su-"it a 0schedule of deliveries of "aterials0 which under
the ter"s of the -id were to -e furnished -, the Bank. <n 4arch ::, )+, A-la'a received a letter fro" the Bank
in8uirin# as to who would -e A-la'a9s representative to si#n the for"al contract. &n the "eanwhile, no less than 4r.
Ri'alino 4endo'a, the Chair"an of the 4ana#e"ent Buildin# Co""ittee of the Central Bank who had -een
si#nin# for the Bank all the co""unications re#ardin# the pro$ect at issue, had visited the construction site in
4arch, )+, $ust -efore he wrote the re8uest a-ove"entioned of the ::nd of that "onth for the no"ination of the
representative to si#n the for"al contract, and actuall, saw the pro#ress of the work and that it was -ein# continued,
-ut he never protested or had it stopped. All these despite the fact that the 4e"orandu" Circular -ein# invoked -,
the Bank was issued wa, -ack on .ece"-er 3), )+/ ,et. And when finall, on 4a, :*, )+ the Bank "et with the
representatives of A-la'a re#ardin# the idea of chan#in# the plans to "ore econo"ical ones, there was no "ention
of the non-e5ecution of the contract as entitlin# the Bank to -ack out of it unconditionall,. Rather, the talk,
accordin# to the findin#s of the lower courts, was a-out the possi-ilit, of settin# aside whatever a#ree"ent there
was alread,. 3nder these circu"stances, it appears that respondent has -een "ade to -elieve up to the ti"e the Bank
decided definitel, not to honor an, a#ree"ent at all that its e5ecution was not indispensa-le to a contract to -e
considered as alread, operatin# and respondent could therefore proceed with the work, while the contract could -e
for"ali'ed later.
Petitioner contends ne5t that its withdrawal fro" the contract is $ustified -, the polic, of econo"ic restraint
ordained -, 4e"orandu" Circular No. ). >e do not see it that wa,. &nas"uch as the contract here in 8uestion was
perfected -efore the issuance of said 4e"orandu" Circular, it is ele"entar, that the sa"e "a, not -e enforced in
such a "anner as to result in the i"pair"ent of the o-li#ations of the contract, for that is not constitutionall,
per"issi-le. Not even -, "eans of a statute, which is "uch "ore wei#ht, than a "ere declaration of polic,, "a, the
#overn"ent issue an, re#ulation relievin# itself or an, person fro" the -indin# effects of a contract. ?1ection ) ?)*@,
Article &&&, Philippine Constitution of )+/3 and 1ection )), Article &H, )+;3 Constitution of the Philippines.@
1peciall, in the case of the Central Bank, perhaps, it "i#ht not have -een reall, i"perative that it should have
revised its plans, considerin# that it has its own resources independent of those of the national #overn"ent and that
the funds of the Central Bank are derived fro" its own operations, not fro" ta5es. &n an, event, if the "e"orandu"
circular had to -e i"ple"ented, the correspondin# action in that direction should have -een taken without loss of
ti"e and -efore the contract in 8uestion had taken deeper roots. &t is thus clear that in un$ustifia-l, failin# to honor
its contract with respondent, petitioner has to suffer the conse8uences of its action.
6he last issue su-"itted for <ur resolution refers to the a"ount of da"a#es awarded to A-la'a -, the trial court and
found -, the Court of Appeals to -e 0fair and reasona-le.0 A#ain, after a review of the record, >e do not find
sufficient #round to distur- the appealed $ud#"ent even in this respect, e5cept as to attorne,9s fees.
6here are three principal ite"s of da"a#es awarded -, the courts -elow, na"el,7 ?)@ co"pensation for actual work
done in the a"ount of P:+!,433.3/, ?:@ unreali'ed profits e8uivalent to )!A of the contract price of P3,;4+,*** or
P;4,!:*.** and ?3@ )/A of the total recover, as attorne,9s fees in addition to the P/,*** alread, paid as retainin#
fee. All of these ite"s were the su-$ect of evidence presented -, the parties. Accordin# to the Court of Appeals7 t.
hq!
As re#ard the accurac, and reasona-leness of the award for da"a#es, -oth actual and
co"pensator,, it is to -e noted that the trial court su-$ected the Co""issioner9s report and the
evidence adduced therein to a careful scrutin,. 6hus, when the appellant called the trial court9s
attention to the fact that the P!)4,)+*.** unreali'ed e5pected profit -ein# clai"ed -, appellee
represented )!A of P4,/:3,:;/.** which was the esti"ated cost of the pro$ect, while the contract
awarded to appellee was onl, in the a"ount of P3,;4+,***.** as per its -id proposal, the Court
"ade the necessar, "odification. &t is further to -e noted that the a"ount of )!A of the esti"ated
cost considered in the said award is "uch less than that #iven -, appellant9s own e5pert witness,
A"-rosio R. %lores. Ce testified that :/A as contractor9s profit 0would -e fair, a"ple and
reasona-le.0 ?6.s.n, p. //;, Batalla.@0 ?p. ); A, Appellant9s -rief.@
Basicall,, these are factual conclusions which >e are not #enerall, at li-ert, to disre#ard. And >e have not -een
shown that the, are devoid of reasona-le -asis.
6here can -e no dispute as to the le#al o-li#ation of petitioner to pa, respondent the actual e5penses it has incurred
in perfor"in# its part of the contract.
3pon the other hand, the le#al 8uestion of whether or not the Bank is lia-le for unreali'ed profits presents no
difficult,. &n Arrieta vs. Naric G.R. No. 2-)/4/, =an. 3), )+4, )* 1CRA ;+, this Court sustained as a "atter of law
the award of da"a#es n the a"ount of 3.1. N:!,***, pa,a-le in Philippine Currenc,, "easured in the rate of
e5chan#e prevailin# at the ti"e the o-li#ation was incurred ?Au#ust, )+/:@, co"prisin# of unreali'ed profits of the
plaintiff, 4rs. Pa' Arrieta, in a case where a #overn"ent-owned corporation, the Naric failed to proceed with the
purchase of i"ported rice after havin# accepted and approved the -id of Arrieta and after she had alread, closed her
contract with her forei#n sellers.
Actuall,, the law on the "atter is une8uivocall, e5pressed in Articles ::** and ::*) of the Civil Code thus7 t.
hq!
AR6. ::**. &dentification for da"a#es shall co"prehend not onl, the value of the loss suffered,
-ut also that of the profits, which the o-li#ee failed to o-tain..
AR6. ::*). &n contracts and 8uasi-contracts, the da"a#es for which the o-li#or who acted in #ood
faith is lia-le shall -e those that are the natural and pro-a-le conse8uences of the -reach of the
o-li#ation, and which the parties have forseen or could have reasona-l, foreseen at the ti"e the
o-li#ation was constituted.
&n case of fraud, -ad faith, "alice or wanton attitude, the o-li#or shall -e responsi-le for all
da"a#es which "a, -e reasona-l, attri-uted to the non- perfor"ance of the o-li#ation.
Construin# these provisions, the followin# is what this Court held in Cerrano vs. "an Chu(o, 3! Phil. 3+:7 t.
hq!
.... Article ))* ?now ::**@ of the Civil Code esta-lishes the rule that prospective profits "a, -e
recovered as da"a#es, while article ))*; ?now ::*)@ of the sa"e Code provides that the da"a#es
recovera-le for the -reach of o-li#ations not ori#inatin# in fraud ?dolo@ are those which were or
"i#ht have -een foreseen at the ti"e the contract was entered into. Appl,in# these principles to
the facts in this case, we think that it is un8uestiona-le that defendant "ust -e dee"ed to have
foreseen at the ti"e he "ade the contract that in the event of his failure to perfor" it, the plaintiff
would -e da"a#ed -, the loss of the profit he "i#ht reasona-l, have e5pected to derive fro" its
use.
>hen the e5istence of a loss is esta-lished, a-solute certaint, as to its a"ount is not re8uired. 6he
-enefit to -e derived fro" a contract which one of the parties has a-solutel, failed to perfor" is of
necessit, to so"e e5tent, a "atter of speculation, -ut the in$ured part, is not to -e denied all
re"ed, for that reason alone. Ce "ust produce the -est evidence of which his case is suscepti-le
and if that evidence warrants the inference that he has -een da"a#ed -, the loss of profits which
he "i#ht with reasona-le certaint, have anticipated -ut for the defendant9s wron#ful act, he is
entitled to recover. As stated in 1ed#wick on .a"a#es ?Ninth Bd., par. );;@7
6he #eneral rule is, then, that a plaintiff "a, recover co"pensation for an, #ain which he can
"ake it appear with reasona-le certaint, the defendant9s wron#ful act prevented hi" fro"
ac8uirin#, ...9. ?1ee also Al#arra vs. 1ande$as, :; Phil. Rep., :!4, :!+D Cicks vs. 4anila Cotel Co.,
:! Phil. Rep., 3:/.@ ?At pp. 3+!-3++.@
2ater, in 0eneral Enterprises, :n(. vs. Lianga Ea& Logging Co. :n(., )) 1CRA ;33, Article ::** of the Civil Code
was a#ain applied as follows7 t.hq!
Re#ardin# the actual da"a#es awarded to appellee, appellant contends that the, are unwarranted
inas"uch as appellee has failed to adduce an, evidence to su-stantiate the" even assu"in#
ar#uendo that appellant has failed to suppl, the additional "onthl, :,***,*** -oard feet for the
re"ainder of the period a#reed upon in the contract B5hi-it A. Appellant "aintains that for
appellee to -e entitled to de"and pa,"ent of sales that were not effected it should have proved ?)@
that there are actual sales "ade of appellee9s lo#s which were not fulfilled, ?:@ that it had o-tained
the -est price for such sales, ?3@ that there are -u,ers read, to -u, at such price statin# the volu"e
the, are read, to -u,, and ?4@ appellee could not cover the sales fro" the lo#s of other suppliers.
1ince these facts were not proven, appellee9s ri#ht to unearned co""issions "ust fail.
6his ar#u"ent "ust -e overruled in the li#ht of the law and evidence on the "atter. 3nder Article
::** of the Civil Code, inde"nification for da"a#es co"prehends not onl, the value of the loss
suffered -ut also that of the profits which the creditor fails to o-tain. &n other words, lu(ru)
(essans is also a -asis for inde"nification. 6he 8uestion then that arises is7 Cas appellee failed to
"ake profits -ecause of appellant9s -reach of contract, and in the affir"ative, is there here -asis
for deter"inin# with reasona-le certaint, such unearned profitsM
Appellant9s "e"orandu" ?p. +@ shows that appellee has sold to Forea under the contract in
8uestion the followin# -oard feet of lo#s, Breareton 1cale7 t.hq!
4onths Board %eet
%ro" =une to Au#ust )+/+ 3,**;,43/
1epte"-er, )+/+ none
<cto-er, )+/+ :,:++,!*/
Nove"-er, )+/+ !*),*:)
.ece"-er, )+/+ ),:+;,/)*
6otal ;,4*/,!)
6he a-ove fi#ures tall, with those of B5hi-it N. &n its -rief ?p. )4)@ appellant clai"s that in less
than si5 "onths9 ti"e appellee received -, wa, of co""ission the a"ount of P));,!/+./4, while
in its "e"orandu", appellant "akes the followin# state"ent7
K)). 6he invoice %.<.B. price of the sale throu#h plaintiff General is P;;,;+!.!: -ut the a#reed
%.<.B. price was P;++,3)+.**, the co""ission at )3A ?%.<.B.@ is P));,!/+./4. But, as there were
alwa,s two prices J &nvoice %.<.B price and %.<.B. price as per contract, -ecause of the sales
difference a"ountin# to P3),+:*.)!, and the sa"e was deducted fro" the co""ission, actuall,
paid to plaintiff General is onl, P;+,/!*.!:.9 0 &t appears, therefore, that durin# the period of =une
to .ece"-er, )+/+, in spite of the short deliver, incurred -, appellant, appellee had -een earnin#
its co""ission whenever lo#s were delivered to it. But fro" =anuar,, )+*, appellee had ceased to
earn an, co""ission -ecause appellant failed to deliver an, lo# in violation of their a#ree"ent.
Cad appellant continued to deliver the lo#s as it was -ound to pursuant to the a#ree"ent it is
reasona-le to e5pect that it would have continued earnin# its co""ission in "uch the sa"e
"anner as it used to in connection with the previous ship"ents of lo#s, which clearl, indicates
that it failed to earn the co""issions it should earn durin# this period of ti"e. And this
co""ission is not difficult to esti"ate. 6hus, durin# the seventeen re"ainin# "onths of the
contract, at the rate of at least :,***,*** -oard feet, appellant should have delivered thirt,-four
"illion -oard feet. &f we take the nu"-er of -oard feet delivered durin# the "onths prior to the
interruption, na"el,, ;,4*/,!) -oard feet, and the co""ission received -, appellee thereon,
which a"ounts to P;+,/!*.!:, we would have that appellee received a co""ission of P.*)*;4/
per -oard feet. 4ultipl,in# 34 "illion -oard feet -, P.*)*;4/, the product is P3/,3/*.4*, which
represents the lu(ru) (essans that should accrue to appellee. 6he award therefore, "ade -, the
court a 8uo of the a"ount of P4**,***.** as co"pensator, da"a#es is not speculative, -ut -ased
on reasona-le esti"ate.
&n the li#ht of these considerations, >e cannot sa, that the Court of Appeals erred in "akin# the afore"entioned
award of da"a#es for unreali'ed profits to respondent A-la'a.
>ith respect to the award for attorne,9s fees, >e -elieve that in line with the a"ount fi5ed in 2ian#a, supra., an
award of ten per centu" ?)*A@ of the a"ount of the total recover, should -e enou#h.
PRB4&1B1 C<N1&.BRB., the decision of the Court of Appeals in this case is affir"ed, with the "odification that
the award for attorne,9s fees "ade therein is here-, reduced to ten per centu" ?)*A@ of the total recover, of
respondent A-la'a.
Costs a#ainst petitioner.
Fernando =Chair)an>, ,ntonio, ,quino and Con(ep(ion, 55., (on(ur.1FphG1.Ht