SECOND DIVISION

[G.R. No. L-33022. April 22, 1975.]

CENTRAL BANK OF THE PHILIPPINES , petitioner, v s . COURT OF

APPEALS and ABLAZA CONSTRUCTION & FINANCE CORPORATION ,
respondents.

F . E . Evangelista for petitioner.

Cruz, Villarin & Laureta for private respondent.

SYNOPSIS

After being awarded the contract for the general construction of petitioner's
regional o ce building in San Fernando, La Union, private respondent commenced the
actual construction work on the project. However, while the work was in progress,
petitioner advised private respondent to stop its construction work in view of the
government's policy of economic restraint. Thereafter, negotiations for the settlement
of private respondent's claims on the contract were undertaken, but the same proved
futile. Private respondent then sued petitioner in the trial court for damages for breach
of contract. The trial court rendered judgment in its favor and sentenced petitioner to
pay damages. Petitioner appealed to the Court of Appeals, but the judgment of the trial
court was a rmed. Forthwith, it went to the Supreme Court on a petition for review of
the decision of the Court of Appeals.
Decision a rmed with modi cation of award for attorney's fees to ten per
centum (10%) of the total recovery. cdasia

SYLLABUS

1. APPEAL; DEFENSES NOT PLEADED IN THE ANSWER; MAY NOT BE

RAISED FOR THE FIRST TIME ON APPEAL. — It is a familiar rule in procedure that
defenses not pleaded in the answer not be raised for the rst time on appeal. Indeed, in
the Court of Appeals, only such questions as are related to the issues made by the
parties in their pleadings may be brought up, particularly where factual matters may be
involved, because to permit a party to change his theory on appeal "would be unfair to
the adverse party" (II, Moran, Rules of Court, p. 505, 1970 ed.). Furthermore, under
Section 7 of Rule 51, the appellate court cannot consider any error of the lower court
"unless stated in the assignment of errors and property argued in the brief."
2. REVISED ADMINISTRATIVE CODE; GOVERNMENT CONTRACTS; CENTRAL
BANK CONTRACTS NOT COVERED BY ADMINISTRATIVE CODE. — Contracts entered
into by the Central Bank are not within the contemplation of Sections 607 and 608 of
the Administrative Code. Section 607 speci cally refers to "expenditure(s) of the
National Government" and that the term "National Government" may not be deemed to
include the Central Bank.
3. ID.; ID.; "NATIONAL GOVERNMENT" CONSTRUED. — Under the
Administrative Code itself, the term "National Government" refers only to the central
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 government consisting of the legislative, executive and judicial departments of the
government, as distinguished from local governments and other governmental entities
and is not synonymous, therefore, with the terms "The Government of the Republic of
the Philippines" or "Philippine Government", which are the expressions broad enough to
include not only the central government but also the provincial and municipal
governments, chartered cities and other government-controlled corporations or
agencies, like the Central Bank. (I, Martin, Administrative Code, p. 15.)
4. ID.; ID.; ID.; CENTRAL BANK IS AN AUTONOMOUS BODY. — The Central
Bank is a government instrumentality, but it was created as an autonomous body
corporate to be governed by the provisions of its charter, Republic Act 265, "to
administer the monetary and banking system of the Republic." (Sec. 1). It is not subject,
like the Social Security Commission, to Section 1901 and related provisions of the
Revised Administrative Code which require national government constructions to be
done by or under the supervision of the Bureau of Public Works. (Op. of the Sec. of
Justice No. 92, Series of 1960).
5. ID.; ID.; ID.; SECTION 607 OF ADMINISTRATIVE CODE, RESTRICTIVELY
CONSTRUED; CASE OF ZOBEL vs. CITY OF MANILA. — In Zobel vs. City of Manila, 47
Phil. 69, Section 607 of the Administrative Code was construed to be inapplicable to
contracts entered into by a chartered city. There is, therefore, no valid reason why the
same view should not be followed by conforming its application only to the o cer
comprised within the term National Government, particularly insofar as government-
owned or created corporations or entities having powers to make expenditures and to
incur liabilities by virtue of their own corporate authority independently of the national
or local legislative bodies, as in the case of the Central Bank, are concerned.
6. ID.; ID.; NO CERTIFICATE OF AVAILABILITY OF FUNDS REQUIRED FOR
CENTRAL BANK APPROPRIATIONS. — The Monetary Board, like any other corporate
board, makes all required appropriations directly from the funds of the Central Bank
and does not need any o cial statement of availability from its treasurer or auditor and
without submitting any papers to, much less securing the approval of the Auditor
General or any outside authority before doing so. Indeed, this is readily to be inferred
from the repeal of Administrative Code No. 290, s. 1959, by virtue of which the
requirement that the Central Bank should submit to the Auditor General for examination
and review before contracts involving P10,000 or more to be entered into by it "before
the same are perfected and/or consummated" had already been eliminated at the time
the transaction herein involved took place.
7. ID.; ID.; CENTRAL BANK CONTRACT IN CASE AT BAR WAS PERFECTED. —
Petitioner Central Bank's posture that since the contract in question could become
effective and binding only upon the execution of the formal contract, and since no
formal contract has yet been signed by the parties, there is yet no perfected contract to
speak of is untenable. According to Paragraph 1B 114.1 of its Instructions to Bidders,
private respondent was "required to appear in the o ce of the Owner (the Bank) in
person; or, if a rm or corporations, a duly authorized representative (thereof), and to
execute the contract within (5) days after notice that the contract has been awarded to
him. Failure or neglect to do so shall constitute a breach of agreement effected by the
acceptance of the Proposal." There can be no other meaning of this provision than that
the Bank's acceptance of the bid of private respondent effected an actional agreement
between them.
8. ID.; ID.; ID.; BINDING EFFECT TO EVERY PARTY. — Every party to a contract
who is sui juris and who has entered into it voluntarily and with full knowledge of its
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 unfavorable provisions may not subsequently complain about them when they are
being enforced. In the absence of unavoidable just reasons, a party could not simply
refuse to execute the contract and thereby avoid it entirely. Even a government-owned
corporation may not under the guise of protecting the public interest unceremoniously
disregard contractual commitments to the prejudice of the other party. Otherwise, the
door would be wide open to abuses and anomalies more detrimental to public interest.
9. ID.; ID.; PUBLIC BIDDING; AWARD OF CONTRACT CONSTITUTES
ACCEPTANCE OF BIDDER'S PROPOSAL. — The award of a contract to a bidder
constitutes an acceptance of said bidder's proposal and that "the effect of said
acceptance was to perfect a contract, upon notice of the award to (the bidder)."
(Valencia vs. RFC, 103 Phil. 444). Moreover, the bidder's "failure to (sign the
corresponding contract) did not relieve him of the obligations arising from the
unquali ed acceptance of his offer. Much less did it effect the existence of a contract
between him and respondent." (Ibid).
10. ID.; ID.; PERFECTED CONTRACT; OBLIGATIONS THEREOF CANNOT BE
IMPAIRED. — Inasmuch as the contract in question was perfected before the issuance
of Memorandum Circular No. 1, December 31, 1965, of the President of the Philippines,
announcing the policy of scal restraint, the same may not be enforced in such a
manner as to result in the impairment of the obligations of the contract, for that is not
constitutionally permissible. Not even by means of a statute, which is much more
weighty than a mere declaration of policy, may the government issue any regulation
relieving itself or any person from the binding effects of a contract. (Section 1(10),
Article III, Philippine Constitution of 1935 and Section 11, Article IV, 1973 Constitution
of the Philippines).
11. APPEAL; FINDINGS OF FACT; GENERALLY NOT DISREGARDED. — The
ndings of the Court of Appeals that private respondent is entitled to the damages
claimed may not be disregarded, except as to the attorney's fees especially when they
are not devoid of reasonable basis.
12. DAMAGES; "LUCRUM CESSANS"; A BASIS FOR INDEMNIFICATION. —
Under Article 2200 of the Civil Code, Indemni cation for damages comprehends not
only the value of the loss suffered but also that of the pro ts which the creditor fails to
obtain. In other words, lucrum cessans is also a basis for indemni cation (General
Enterprises, Inc. vs. Lianga Bay Logging Co., Inc., 11 SCRA 733).

DECISION

BARREDO , J : p

Petition of the Central Bank of the Philippines for review of the decision of the
Court of Appeals in CA-G.R. No. 43638-R a rming the judgment of the Court of First
Instance of Rizal in Civil Case No. Q-10919 which sentenced petitioner to pay
respondent Ablaza Construction and Finance Corporation damages for breach of
contract in that after having formally and o cially awarded, pursuant to the results of
the usual bidding, to Ablaza in December 1965 the "contract" for the construction of its
San Fernando, La Union branch building and allowed said contractor to commence the
work up to about May, 1966, albeit without any written formal contract having been
executed, the Bank failed and refused to proceed with the project, unless the plans
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 were revised and a lower price were agreed to by Ablaza, the Bank claiming that its
action was pursuant to the policy of scal restraint announced by the then new
President of the Philippines on December 30, 1965 and Memorandum Circular No. 1
dated December 31, 1965 of the same President.
The factual background of this case is related in the following portions of the
decision of the trial court, which the Court of Appeals affirmed without modification:
"Sometime in 1965, defendant Central Bank of the Philippines issued
Invitations to Bid and Instructions to Bidders for the purpose of receiving sealed
proposals for the general construction of its various proposed regional o ces,
including the Central Bank regional office building in San Fernando, La Union.
In response to the aforesaid Invitations to Bid, the plaintiff Ablaza
Construction and Finance Corporation, which was one of the quali ed bidders,
submitted a bid proposal for the general construction of defendant's proposed
regional o ce building in San Fernando, La Union at the public bidding held on
November 3, 1965. The said proposal was, as required by the defendant
accompanied by a cash bidder's bond in the sum of P275,000.00.
On December 7, 1965, the Monetary Board of the defendant Central Bank
of the Philippines, after evaluating all the bid proposals submitted during the
above-mentioned bidding, unanimously voted and approved the award the
plaintiff of the contract for the general construction of defendant's proposed
regional o ce building in San Fernando, La Union, for the sum of P3,749,000.00
under plaintiff's Proposal Item No. 2.

Pursuant thereto, on December 10, 1965, Mr. Rizalino L. Mendoza,

Assistant to the Governor and concurrently the Chairman of the Management
Building Committee of the defendant Central Bank of the Philippines, set a
telegram to the plaintiff, informing the latter that the contract for the general
construction of defendant's proposed regional office building in San Fernando, La
Union, had been awarded to the plaintiff. The said telegram was followed by a
formal letter, also dated December 10, 1965, duly signed by said Mr. Rizalino L.
Mendoza, con rming the approval of the award of the above-stated contract
under plaintiff's Proposal Item No. 2 in the amount of P3,749,000.00.

Upon receipt of the aforementioned letter, plaintiff immediately accepted

the said award by means of a letter dated December 15, 1965, whereby plaintiff
also requested permission for its workmen to enter the site of the project, build a
temporary shelter and enclosure, and do some clearing job thereat. Accordingly,
said permission was granted by the defendant as embodied in its letter dated
January 4, 1966, addressed to the plaintiff.
Within ve (5) days from receipt by the plaintiff of the said notice of
award, and several times thereafter, Mr. Nicomedes C. Ablaza, an o cer of the
plaintiff corporation, went personally to see Mr. Rizalino L. Mendoza at the latter's
Central Bank o ce to follow up the signing of the corresponding contract. A
performance bond in the total amount of P962,250.00 (P275,000.00 of which was
in cash and P687,250.00 in the form of a surety bond) was subsequently posted
by the plaintiff in compliance with the above-stated Instructions to Bidders, which
bond was duly accepted by the defendant.

Pursuant to the permission granted by the defendant, as aforesaid,

plaintiff commenced actual construction work on the project about the middle of
January, 1966. On February 8, 1966, by means of a formal letter, defendant
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 requested the plaintiff to submit a schedule of deliveries of materials which,
according to plaintiff's accepted proposal, shall be furnished by the defendant. In
compliance therewith, on February 16, 1966, plaintiff submitted to the defendant
the schedule of deliveries requested for.
During the period when the actual construction work on the project was in
progress, Mr. Nicomedes G. Ablaza had several meetings with Mr. Rizalino L.
Mendoza at the latter's o ce in the Central Bank. During those meetings, they
discussed the progress of the construction work being then undertaken by the
plaintiff of the projects of the defendant in San Fernando, La Union, including the
progress of the excavation work.
Sometime during the early part of March, 1966, Mr. Rizalino L. Mendoza
was at the construction site of the said project. While he was there, he admitted
having seen pile of soil in the premises. At that time, the excavation work being
undertaken by the plaintiff was about 20% complete. On March 22, 1966,
defendant again wrote the plaintiff, requesting the latter to submit the name of its
representative authorized to sign the building contract with the defendant. In
compliance with the said request, plaintiff submitted to the defendant the name
of its duly authorized representative by means of a letter dated March 24, 1966.
A meeting called by the defendant was held at the conference room of the
Central Bank on May 20, 1966. At the said meeting, the defendant, thru Finance
Secretary Eduardo Romualdez, announced, among other things, the reduction of
the appropriations for the construction of the defendant's various proposed
regional o ces, including that of the proposed San Fernando, La Union regional
o ce building, the construction of which had already been started by the
plaintiff. He also stated that the Central Bank Associated Architects would be
asked to prepare new plans and designs based on such reduced appropriations.
The defendant, during that same meeting, also advised the plaintiff, thru Messrs.
Nicomedes G. Ablaza and Alfredo G. Ablaza (who represented the plaintiff
corporation at the said meeting), to stop its construction work on the Central Bank
Regional o ce building in San Fernando, La Union. This was immediately
complied with by the plaintiff, although its various construction equipment
remained in the jobsite. The defendant likewise presented certain offer and
proposals to the plaintiff, among which were: (a) the immediate return of
plaintiff's cash bidder's bond of P275,000.00; (b) the payment of interest on said
bidder's bond at 12% per annum; (c) the reimbursement to the plaintiff of the
value of all the work accomplished at the site; (d) the entering into a negotiated
contract with the plaintiff on the basis of the reduced appropriation for the project
in question; and (e) the reimbursement of the premium on plaintiff's performance
bond. Not one of these offers and proposals of the defendant, however, was
accepted by the plaintiff during that meeting of May 20, 1966.
On June 3, 1966, plaintiff, thru counsel, wrote the defendant, demanding
for the formal execution of the corresponding contract, without prejudice to its
claim for damages. The defendant, thru its Deputy Governor, Mr. Amado R.
Briñas, on June 15, 1966, replied to the said letter of the plaintiff, whereby the
defendant claimed that an agreement was reached between the plaintiff and the
defendant during the meeting held on May 20, 1966. On the following day,
however, in its letter dated June 16, 1966, the plaintiff, thru counsel, vehemently
denied that said parties concluded any agreement during the meeting in question.

On July 5, 1966, defendant again offered to return plaintiff's cash bidder's

bond in the amount of P275,000.00. The plaintiff, thru counsel, on July 6, 1966,
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 agreed to accept the return of the said cash bond, without prejudice, however, to
its claims as contained in its letters to the defendant dated June 3, June 10, and
June 16, 1966, and with further reservation regarding payment of the
corresponding interest thereon. On July 7, 1966, the said sum of P275,000.00 was
returned by the defendant to the plaintiff.
On January 30, 1967, in accordance with the letter of the plaintiff, thru
counsel, dated January 26, 1967, the construction equipment of the plaintiff were
pulled out from the construction site, for which the plaintiff incurred hauling
expenses.
The negotiations of the parties for the settlement of plaintiff's claims out
of court proved to be futile; hence, the present action was instituted by plaintiff
against the defendant." (Pp. 249-256, Rec. on Appeal).

It may be added that the Instructions to Bidders on the basis of which the bid
and award in question were submitted and made contained, among others, the
following provisions:
"IB 113.4 The acceptance of the Proposal shall be communicated in
writing by the Owner and no other act of the Owner shall constitute the
acceptance of the Proposal. The acceptance of a Proposal shall bind the
successful bidder to execute the Contract and to be responsible for liquidated
damages as herein provided. The rights and obligations provided for in the
Contract shall become effective and binding upon the parties only with its formal
execution.
xxx xxx xxx
"IB 114.1 The bidder whose proposal is accepted will be required to
appear at the O ce of the Owner in person, or, if a rm or corporation, a duly
authorized representative shall so appear, and to execute the contract within ve
(5) days after notice that the contract has been awarded to him. Failure or neglect
to do so shall constitute a breach of agreement effected by the acceptance of the
Proposal.
xxx xxx xxx
"IB 118.1 The Contractor shall commence the work within ten (10)
calendar days from the date he receives a copy of the fully executed Contract, and
he shall complete the work within the time speci ed." (Pp. 18-19 & 58-59,
Petitioner-Appellant's Brief.)

In the light of these facts, petitioner has made the following assignment of
errors:
"I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS A
PERFECTED CONTRACT BETWEEN PETITIONER CENTRAL BANK OF THE
PHILIPPINES AND RESPONDENT ABLAZA CONSTRUCTION & FINANCE
CORPORATION FOR THE GENERAL CONSTRUCTION WORK OF PETITIONER'S
REGIONAL OFFICE BUILDING AT SAN FERNANDO, LA UNION.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
HAS COMMITTED A BREACH OF CONTRACT.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

HAD GIVEN ITS APPROVAL TO THE WORK DONE BY RESPONDENT ABLAZA
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 CONSTRUCTION & FINANCE CORPORATION.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE AWARD

OF ACTUAL AND COMPENSATORY DAMAGES, ATTORNEY'S FEES AND
RETAINING FEE IS FAIR AND REASONABLE, AND IN HOLDING THAT PETITIONER
IS LIABLE FOR COSTS." (Pp. A & B, Petitioner-Appellant's Brief.)

Under the rst assigned error, petitioner devotes the major part of its effort to
the discussion of its proposition that there could be no perfected contract in this case,
(contrary to the conclusion of the courts below) because there is no showing of
compliance, and in fact, there has been no compliance with the requirement that there
must be a certi cation of the availability of funds by the Auditor General pursuant to
Section 607 of the Revised Administrative Code which provides thus:
"Section 607. Certi cate showing appropriation to meet contract . —
Except in the case of a contract for personal service or for supplies to be carried in
stock, no contract involving an expenditure by the National Government of three
thousand pesos or more shall be entered into or authorized until the Auditor
General shall have certi ed to the o cer entering into such obligation that funds
have been duly appropriated for such purpose and that the amount necessary to
cover the proposed contract is available for expenditure on account thereof. When
application is made to the Auditor General for the certi cate herein required, a
copy of the proposed contract or agreement shall be submitted to him
accompanied by a statement in writing from the o cer making the application
showing all obligations not yet presented for audit which have been incurred
against the appropriation to which the contract in question would be chargeable;
and such certi cate, when signed by the Auditor, shall be attached to and become
a part of the proposed contract, and the sum so certi ed shall not thereafter be
available for expenditure for any other purposes until the Government is
discharged from the contract in question.
Except in the case of a contract for supplies to be carried in stock, no
contract involving the expenditure by any province, municipality, chartered city, or
municipal district of two thousand pesos or more shall be entered into or
authorized until the treasurer of the political division concerned shall have
certi ed to the o cer entering into such contract that funds have been duly
appropriated for such purpose and that the amount necessary to cover the
proposed contract is available for expenditure on account thereof. Such
certi cate, when signed by the said treasurer, shall be attached to and become
part of the proposed contract and the sum so certi ed shall not thereafter be
available for expenditure for any other purpose until the contract in question is
lawfully abrogated or discharged.
For the purpose of making the certi cate hereinabove required ninety per
centum of the estimated revenues and receipts which should accrue during the
current scal year but which are yet uncollected, shall be deemed to be in the
treasury of the particular branch of the Government against which the obligation
in question would create a charge." (Pp. 23-25, Petitioner-Appellant's Brief.)

It is contended that in view of such omission and considering the provisions of

Section 608 of the same code to the effect that "a purported contract entered into
contrary to the requirements of the next preceding section hereof shall be wholly void",
"no contract between the petitioner and respondent Ablaza Construction and Finance
Corporation for the general construction of the proposed regional o ce building of the
Central Bank in San Fernando, La Union, was ever perfected because only the first stage,
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 that is, the award of the contract to the lowest responsible bidder, respondent Ablaza
Construction and Finance Corporation, was completed." (p. 29, Petitioner-Appellant's
Brief.) And in support of this pose, petitioner relies heavily on Tan C. Tee & Co. vs.
Wright thus:
"The aforesaid requirements of the Revised Administrative Code for the
perfection of government contracts have been upheld by this Honorable Court in
the case of Tan C. Tee & Co. vs. Wright, 53 Phil. 172, in which case it was held
that the award of the contract to the lowest bidder does not amount to entering
into the contract because of the requirement of Section 607 of the Revised
Administrative Code that a copy of the proposed contract shall be submitted to
the Auditor General together with a request for the availability of funds to cover
the proposed contract. Thus, this Honorable Court held:
'To award the contract to the lowest responsible bidder is not the
equivalent of entering into the contract. Section 607 of the Administrative
Code requires that a copy of the proposed contract shall be submitted
along with the request for the certi cate of availability of funds, but there
could be no proposed contract to be submitted until after the award was
made.'
And to guide government authorities in the letting of government contracts,
this Honorable Court, in said case of Tan C. Tee vs. Wright, supra, laid down the
procedure which should be followed, as follows:
'PROCEDURE WHICH SHOULD BE FOLLOWED IN THE LETTING OF
CONTRACTS FOR INSULAR WORKS. — The procedure which should be
followed in the letting of contracts for Insular works is the following: First,
there is an award of the contract by the Director of Public Works to the
lowest responsible bidder. Second, there is a certi cate of availability of
funds to be obtained from the Insular Auditor, and in some cases from the
Insular Treasurer, to cover the proposed contract. And third, there is a
contract to be executed on behalf of the Government by the Director of
Public Works with the approval of the department head.'" (Pp. 27-28,
Petitioner-Appellant's Brief.)

The contention is without merit. To start with, the record reveals that it is more of
an afterthought. Respondent never raised this question whether in its pleadings or at
the hearings in the trial court. We have also read its brief in the appellate court and no
mention is made therein of this point. Not even in its memorandum submitted to that
court in lieu of oral argument is there any discussion thereof, even as it appears that
emphasis was given therein to various portions of the Revised Manual of Instructions
to Treasurers regarding the perfection and constitution of public contracts. In fact,
reference was made therein to Administrative Order No. 290 of the President of the
Philippines, dated February 5, 1959, requiring "all contracts of whatever nature involving
P10,000 or more to be entered into by all bureaus and o ces, . . . including the . . .
Central Bank . . . shall be submitted to the Auditor General for examination and review
before the same are perfected and/or consummated, etc.", without mentioning,
however, that said administrative order was no longer in force, the same having been
revoked on January 17, 1964 by President Macapagal under Administrative Order No.
81, s. 1964.
Hence, if only for the reason that it is a familiar rule in procedure that defenses
not pleaded in the answer may not be raised for the rst time on appeal, petitioner's
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 position cannot be sustained. Indeed, in the Court of Appeals, petitioner could only
bring up such questions as are related to the issues made by the parties in their
pleadings, particularly where factual matters may be involved, because to permit a
party to change his theory on appeal "would be unfair to the adverse party." (II, Moran,
Rules of Court, p. 505, 1970 ed.) Furthermore, under Section 7 of Rule 51, the appellate
court cannot consider any error of the lower court "unless stated in the assignment of
errors and properly argued in the brief."
Even prescinding from this consideration of belatedness, however, it is Our
considered view that contracts entered into by petitioner Central Bank are not within
the contemplation of Sections 607 and 608 cited by it. Immediately to be noted,
Section 607 speci cally refers to "expenditure(s) of the National Government" and that
the term "National Government" may not be deemed to include the Central Bank. Under
the Administrative Code itself, the term "National Government" refers only to the central
government, consisting of the legislative, executive and judicial departments of the
government, as distinguished from local governments and other governmental entities
and is not synonymous, therefore, with the terms "The Government of the Republic of
the Philippines" or "Philippine Government", which are the expressions broad enough to
include not only the central government but also the provincial and municipal
governments, chartered cities and other government-controlled corporations or
agencies, like the Central Bank. (I, Martin, Administrative Code, p. 15.)
To be sure the Central Bank is a government instrumentality. But it was created
as an autonomous body corporate to be governed by the provisions of its charter,
Republic Act 265, "to administer the monetary and banking system of the Republic."
(Sec. 1) As such, it is authorized "to adopt, alter, and use a corporate seal which shall be
judicially noticed; to make contracts; to lease or own real and personal property, and to
sell or otherwise dispose of the same; to sue and be sued, and otherwise to do and
perform any and all things that may be necessary or proper to carry out the purposes of
this Act. The Central Bank may acquire and hold such assets and incur such liabilities as
result directly from operations authorized by the provisions of this Act, or as are
essential to the proper conduct of such operations." (Sec. 4) It has capital of its own
and operates under a budget prepared by its own Monetary Board and otherwise
appropriates money for its operations and other expenditures independently of the
national budget. It does not depend on the National Government for the nancing of its
operations; it is the National Government that occasionally resorts to it for needed
budgetary accommodations. Under Section 14 of the Bank's charter, the Monetary
Board may authorize such expenditures by the Central Bank as are in the interest of the
effective administration and operation of the Bank." Its prerogative to incur such
liabilities and expenditures is not subject to any prerequisite found in any statute or
regulation not expressly applicable to it. Relevantly to the issues in this case, it is not
subject, like the Social Security Commission, to Section 1901 and related provisions of
the Revised Administrative Code which require national government constructions to
be done by or under the supervision of the Bureau of Public Works. (Op. of the Sec. of
Justice No. 92, Series of 1960) For these reasons, the provisions of the Revised
Administrative Code invoked by the Bank do not apply to it. To Our knowledge, in no
other instance has the Bank ever considered itself subject thereto.
In Zobel vs. City of Manila, 47 Phil. 169, this Court adopted a restrictive
construction of Section 607 of the Administrative Code thus:
"The second question to be considered has reference to the applicability of
section 607 of the Administrative Code to contracts made by the City of Manila. In
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 the second paragraph of said section it is declared that no contract involving the
expenditure by any province, municipality, township, or settlement of two
thousand pesos or more shall be entered into or authorized until the treasurer of
the political division concerned shall have certi ed to the o cer entering into
such contract that funds have been duly appropriated for such purpose and that
the amount necessary to cover the proposed contract is available for expenditure
on account thereof. It is admitted that no such certi cate was made by the
treasurer of Manila at the time the contract now in question was made. We are of
the opinion that the provision cited has no application to contracts of a chartered
city, such as the City of Manila. Upon examining said provision (sec. 607) it will
be found that the term chartered city, or other similar expression, such as would
include the City of Manila, is not used; and it is quite manifest from the careful
use of terms in said section that chartered cities were intended to be excluded. In
this connection the de nitions of 'province,' 'municipality,' and 'chartered city,'
given in section 2 of the Administrative Code are instructive. The circumstance
that for certain purposes the City of Manila has the status both of a province and
a municipality (as is true in the distribution of revenue) is not inconsistent with
this conclusion." 1

We perceive no valid reason why the Court should not follow the same view now in
respect to the rst paragraph of the section by con rming its application only to the
o ces comprised within the term National Government as above de ned, particularly
insofar as government-owned or created corporations or entities having powers to
make expenditures and to incur liabilities by virtue of their own corporate authority
independently of the national or local legislative bodies, as in the case of the petitioner
herein, are concerned. Whenever necessary, the Monetary Board, like any other
corporate board, makes all required appropriations directly from the funds of the Bank
and does not need any o cial statement of availability from its treasurer or auditor and
without submitting any papers to, much less securing the approval of the Auditor
General or any outside authority before doing so. Indeed, this is readily to be inferred
from the repeal already mentioned earlier of Administrative Order No. 290, s. 1959,
which petitioner tried to invoke, overlooking perhaps such repeal. In other words, by
that repeal, the requirement that the Central Bank should submit to the Auditor General
for examination and review before contracts involving P10,000 or more to be entered
into by it "before the same are perfected and/or consummated" had already been
eliminated at the time the transaction herein involved took place. Consequently, the
point of invalidity pressed, belatedly at that, by petitioner has no leg to stand on.
The other main contention of petitioner is that the purported or alleged contract
being relied upon by respondent never reached the stage of perfection which would
make it binding upon the parties and entitle either of them to sue for speci c
performance in case of breach thereof. In this connection, since the transaction herein
involved arose from the award of a construction contract 2 by a government
corporation and the attempt on its part to discontinue with the construction several
months after such award had been accepted by the contractor and after the latter had
already commenced the work without any objection on the part of the corporation, so
much so that entry into the site for the purpose was upon express permission from it,
but before any written contract has been executed, it is preferable that certain pertinent
points be clari ed for the proper resolution of the issue between the parties here and
the general guidance of all who might be similarly situated.
Petitioner buttresses its position in regard to this issue on the provisions earlier
quoted in this opinion of the Instruction to Bidders:
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 "IB 113.4 The acceptance of the Proposal shall be communicated in
writing by the Owner and no other act of the Owner shall constitute the
acceptance of the Proposal. The acceptance of a Proposal shall bind the
successful bidder to execute the Contract and to be responsible for liquidated
damages as herein provided. The rights and obligations provided for in the
Contract shall become effective and binding upon the parties only with its formal
execution.
xxx xxx xxx
IB 118.1 The Contractor shall commence the work within ten (10)
calendar days from the date he receives a copy of the fully executed Contract, and
he shall complete the work within the time speci ed." (Pp. 18-19, Petitioner-
Appellant's Brief.)

Petitioner insists that under these provisions, the rights and obligations of the
Bank and Ablaza could become effective and binding only upon the execution of the
formal contract, and since admittedly no formal contract has yet been signed by the
parties herein, there is yet no perfected contract to speak of and respondent has,
therefore, no cause of action against the Bank. And in refutation of respondent's
argument that it had already started the work with some clearing job and foundation
excavations, which has never been stopped by petitioner who had previously given
express permission to respondent to enter the jobsite, build a temporary shelter and
enclosures thereon, petitioner counters that under the above instructions, respondent is
supposed to commence the work "within ten (10) calendar days from the date he
receives a copy of the fully executed Contract," and for said respondent to have started
actual construction work before any contract has been signed was unauthorized and
was consequently undertaken at his own risk, all the above circumstances indicative of
estoppel notwithstanding.
We are not persuaded that petitioner's posture conforms with law and equity.
According to Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was "required to
appear in the o ce of the Owner (the Bank) in person, or, if a rm or corporation, a duly
authorized representative (thereof), and to execute the contract within ve (5) days
after notice that the contract has been awarded to him. Failure or neglect to do so shall
constitute a breach of agreement effected by the acceptance of the Proposal." There
can be no other meaning of this provision than that the Bank's acceptance of the bid of
respondent Ablaza effected an actionable agreement between them. We cannot read it
in the unilateral sense suggested by petitioner that it bound only the contractor, without
any corresponding responsibility or obligation at all on the part of the Bank. An
agreement presupposes a meeting of minds and when that point is reached in the
negotiations between two parties intending to enter into a contract, the purported
contract is deemed perfected and none of them may thereafter disengage himself
therefrom without being liable to the other in an action for specific performance.
The rather ambiguous terms of Paragraph IB 113.4 of the Instructions to Bidders
relied upon by petitioner have to be reconciled with the other paragraphs thereof to
avoid lack of mutuality in the relation between the parties. This invoked paragraph
stipulates that "the acceptance of (respondent's) Proposal shall bind said respondent)
to execute the Contract and to be responsible for liquidated damages as herein
provided." And yet, even if the contractor is ready and willing to execute the formal
contract within the ve (5) day period given to him, petitioner now claims that under the
invoked provision, it could refuse to execute such contract and still be absolutely free
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 from any liability to the contractor who, in the meantime, has to make necessary
arrangements and incur expenditures in order to be able to commence work "within ten
(10) days from the date he receives a copy of the fully executed Contract," or be
responsible for damages for delay. The unfairness of such a view is too evident to be
justi ed by the invocation of the principle that every party to a contract who is sui juris
and who has entered into it voluntarily and with full knowledge of its unfavorable
provisions may not subsequently complain about them when they are being enforced, if
only because there are other portions of the Instruction to Bidders which indicate the
contrary. Certainly, We cannot sanction that in the absence of unavoidable just reasons,
the Bank could simply refuse to execute the contract and thereby avoid it entirely. Even
a government owned corporation may not under the guise of protecting the public
interest unceremoniously disregard contractual commitments to the prejudice of the
other party. Otherwise, the door would be wide open to abuses and anomalies more
detrimental to public interest. If there could be instances wherein a government
corporation may justi ably withdraw from a commitment as a consequence of more
paramount considerations, the case at bar is not, for the reasons already given, one of
them.
As We see it then, contrary to the contention of the Bank, the provision it is citing
may not be considered as determinative of the perfection of the contract here in
question. Said provision only means that as regards the violation of any particular term
or condition to be contained in the formal contract, the corresponding action therefor
cannot arise until after the writing has been fully executed. Thus, after the Proposal of
respondent was accepted by the Bank thru its telegram and letter both dated
December 10, 1965 and respondent in turn accepted the award by its letter of
December 15, 1965, both parties became bound to proceed with the subsequent steps
needed to formalize and consummate their agreement. Failure on the part of either of
them to do so, entitles the other to compensation for the resulting damages. To such
effect was the ruling of this Court in Valencia vs. RFC 103 Phil. 444. We held therein that
the award of a contract to a bidder constitutes an acceptance of said bidder's proposal
and that "the effect of said acceptance was to perfect a contract, upon notice of the
award to (the bidder)". (at p. 450) We further held therein that the bidder's "failure to
(sign the corresponding contract) did not relieve him of the obligation arising from the
unquali ed acceptance of his offer. Much less did it affect the existence of a contract
between him and respondent". (at p. 452)
It is neither just nor equitable that Valencia should be construed to have
sanctioned a one-sided view of the perfection of contracts in the sense that the
acceptance of a bid by a duly authorized o cial of a government-owned corporation,
nancially and otherwise autonomous both from the National Government and the
Bureau of Public Works, insofar as its construction contracts are concerned, binds only
the bidder and not the corporation until the formal execution of the corresponding
written contract.
Such unfairness and inequity would even be more evident in the case at bar, if We
were to uphold petitioner's pose. Pertinently to the point under consideration, the trial
court found as follows:
"To determine the amount of damages recoverable from the defendant,
plaintiff's claim for actual damages in the sum of P298,433.35, as hereinabove
stated, and the recommendation of Messrs. Ambrosio R. Flores and Ricardo Y.
Mayuga, as contained in their separate reports (Exhs. '13' and '15'), in the
amounts of P154,075.00 and P147,500.00, respectively, should be taken into
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 account.
"There is evidence on record showing that plaintiff incurred the sum of
P48,770.30 for the preparation of the jobsite, construction of bodegas, fences,
eld o ces, working sheds, and workmen's quarters; that the value of the
excavation work accomplished by the plaintiff at the site was P113,800.00; that
the rental of the various construction equipment of the plaintiff from the
stoppage of work until the removal thereof from the jobsite would amount to
P78,540.00 (Exhs. 'K'-'K-1'); that the interest on the cash bond of P275,000.00
from November 3, 1965 to July 7, 1966 at 12% per annum would be P22,000.00;
that for removing said construction equipment from the jobsite to Manila, plaintiff
paid a hauling fee of P700.00 (Exhs. 'L' - 'L-1'); that for the performance bond that
the plaintiff posted as required under its contract with the defendant, the former
was obliged to pay a premium of P2,216.55; and that the plaintiff was likewise
made to incur the sum of P32,406.50, representing the 3% contractor's tax (Exhs.
'AA' - 'A-1'). The itemized list of all these expenditures, totalling P298,433.35 is
attached to the records of this case (Annex 'B', Complaint) and forms part of the
evidence of the plaintiff. Mr. Nicomedes G. Ablaza, the witness for the plaintiff,
properly identi ed said document and a rmed the contents thereof when he
testi ed during the hearing. The same witness likewise explained in detail the
various gures contained therein, and identi ed the corresponding supporting
papers.
"It is noteworthy, in this connection, that there is nothing in the records that
would show that the defendant assailed the accuracy and/or reasonableness of
the gures presented by the plaintiff; neither does it appear that the defendant
offered any evidence to refute said figures.
"While it is claimed by the defendant that the plaintiff incurred a total
expense of only P154,075.00 according to the report of Mr. Ambrosio R. Flores, or
P147,500.00, according to the report of Mr. Ricardo Y. Mayuga, the Court nds
said estimates to be inaccurate. To cite only an instance, in estimating the value
of the excavation work, the defendant merely measured the depth, length and
width of the excavated area which was submerged in water, without ascertaining
the volume of rock and the volume of earth actually excavated as was done by
the plaintiff who prepared a detailed plan showing the pro le of the excavation
work performed in the site (Exh. "B"). Likewise, the unit measure adopted by the
defendant was in cubic meter while it should be in cubic yard. Also, the unit price
used by the defendant was only P8.75 for rock excavation while it should be
P10.00 per cubic yard; and only P4.95 for earth excavation while it should be
P5.50 per cubic yard as clearly indicated in plaintiff's proposal (Annex 'A',
Complaint; same as Annex '1', Answer). The Court, therefore, can not give
credence to defendant's aforementioned estimates in view of their evident
inaccuracies.

"The Court nds from the evidence adduced that plaintiff's claim for actual
damages in the sum of P298,433.35 is meritorious.
"The Bulk of plaintiff's claims consists of expected pro t which it failed to
realize due to the breach of the contract in question by the defendant. As
previously stated, the plaintiff seeks to recover the amount of P814,190.00 by
way of unrealized expected pro t. This gure represents 18% of P4,523,275.00
which is the estimated direct cost of the subject project.
"As it has been established by the evidence that the defendant in fact was
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 guilty of breach of contract and, therefore, liable for damages (Art. 1170, New Civil
Code), the Court nds that the plaintiff is entitled to recover from the defendant
unrealized expected pro t as part of the actual or compensatory damages.
Indemni cation for damages shall comprehend not only the value of the loss
suffered, but also that of the pro ts which the obligee failed to obtain (Art. 2200,
New Civil Code).

"Where a party is guilty of breach of contract, the other party is entitled to

recover the pro t which the latter would have been able to make bad the contract
been performed (Paz P. Arrieta, et al., plaintiffs-appellees, vs. National Rice
Corporation, defendant-appellant, G.R. No. L-15645, promulgated on January 31,
1964; Vivencio Cerrano, plaintiff-appellee, vs. Tan Chuco, defendant-appellant, 38
Phil. 392).

"Regarding the expected pro t, a number of questions will have to be

answered: Is the 18% unrealized expected pro t being claimed by the plaintiff
reasonable? Would the plaintiff be entitled to the whole amount of said expected
pro t although there was only partial performance of the contract? Would the
18% expected pro t be based on the estimated direct cost of the subject in the
amount of P4,523,215.00, or on plaintiff's bid proposal of P3,749,000.00?

"On the question of reasonableness of the 18% expected pro t, the Court
noted that according to defendant's own expert witness, Mr. Ambrosio R. Flores,
25% contractor's pro t for a project similar in magnitude as the one involved in
the present case would be ample and reasonable. Plaintiff's witness, Mr.
Nicomedes G. Ablaza, an experienced civil engineer who has been actively
engaged in the construction business, testi ed that 15% to 20% contractor's pro t
would be in accordance with the standard engineering practice. Considering the
type of the project involved in this case, he stated, the contractor's pro t was
placed at 18%. Taking into consideration the fact that this percentage of pro t is
even lower than what defendant's witness considered to be ample and
reasonable, the Court believes that the reasonable percentage should be 18%
inasmuch as the actual work was not done completely and the plaintiff has not
invested the whole amount of money called for by the project." (Pp. 263-268,
Record on Appeal.)

These ndings have not been shown to Us to be erroneous. And additional and
clari catory details, which We nd to be adequately supported by the record, are stated
in Respondents' brief thus:
"23. In a letter dated January 4, 1966, petitioner Central Bank, through
the same Mr. Mendoza, acceded to this request of respondent Ablaza. (Annex 'D-
1' to the Partial Stipulation of Facts, R.A., p. 146).

"24. Acting upon this written permission, respondent Ablaza

immediately brought its men and equipment from Manila to the construction site
in San Fernando, La Union, and promptly commenced construction work thereat.
This work, consisted of the setting up of an enclosure around the site, the building
of temporary shelter for its workmen, and the making of the necessary excavation
works. (Commissioner's Report, R.A., p. 181).

"25. Following the commencement of such construction work,

petitioner Central Bank, through a letter dated February 8, 1966, formally
requested respondent Ablaza to submit to petitioner the following:
(a) A schedule of deliveries of material which, under the
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 terms of respondent Ablaza's approved proposal, were to be furnished
by petitioner.
(b) A time-table for the accomplishment of the construction
work.
In short, as early as February 8, 1966, or more than three months prior
to petitioner's repudiation of the contract in question, the latter
(petitioner) already took the above positive steps in compliance with its
own obligations under the contract.
"26. Acting upon petitioner's above letter of February 8, 1966, on
February 16, 1966, respondent Ablaza submitted the schedule of deliveries
requested by petitioner. ( Commissioner's Report, R.A., p. 182; Decision, id., 252;
also Exhs. 'D' to 'D-7', inclusive.)
"27. During the period of actual construction, respondent Ablaza on
several occasions, actually discussed the progress of the work with Mr. Mendoza.
In addition, in March 1966, the latter (Mr. Mendoza) personally visited the
construction site. There he saw the work which respondent had by that time
already accomplished which consisted of the completion of approximately 20%
of the necessary excavation works. (Commissioner's Report, R.A., p. 182; Decision,
id., p. 252)
"28. Following Mr. Mendoza's visit at the construction site, or more
speci cally on March 22, 1966, the latter (Mendoza) wrote to respondent Ablaza,
instructing the latter to formally designate the person to represent the corporation
at the signing of the formal construction contract. (Exh. "H"; also t.s.n., pp. 119-
121, December 18, 1967)
"29. By a letter dated March 24, 1966, respondent Ablaza promptly
complied with the above request. (Exh. "I"; also t.s.n., pp. 121-123, December 18,
1967)

"30. Subsequently, respondent Ablaza posted the required

performance guaranty bond in the total amount of P962,250.00, consisting of (a)
a cash bond in the amount of P275,000.00, and (b) a surety bond, PSIC Bond No.
B-252-ML, dated May 19, 1966, in the amount of P687,250.00. In this connection,
it is important to note that the speci c purpose of this bond was to guarantee 'the
faithful performance of the Contract' by respondent Ablaza. (Partial Stipulation of
Facts, par. 6, R.A., p. 141). This performance guaranty bond was duly accepted by
petitioner. (Id.)
"31. However, on May 20, 1966, petitioner Central Bank called for a
meeting with representatives of respondent Ablaza and another contractor. This
meeting was held at the Conference Room of the Central Bank Building. At this
meeting, then Finance Secretary Eduardo Romualdez, who acted as the
representative of petitioner, announced that the Monetary Board had decided to
reduce the appropriations for the various proposed Central Bank regional o ce
buildings, including the one for San Fernando, La Union.

"32. In view of this decision, Secretary Romualdez informed

respondent Ablaza that new plans and designs for the proposed regional o ce
building in San Fernando would have to be drawn up to take account of the
reduction in appropriation. Secretary Romualdez then advised respondent to
suspend work at the construction site in San Fernando in the meanwhile.
(Decision, R.A., pp. 253-254)
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 "33. After making the above announcements, Secretary Romualdez
proposed that all existing contracts previously entered into between petitioner
Central Bank and the several winning contractors (among them being respondent
Ablaza) be considered set aside.

"34. Obviously to induce acceptance of the above proposal, Secretary

Romualdez offered the following concessions to respondent Ablaza:.
(a) That its cash bond in the amount of P275,000.00 be
released immediately, and that interest be paid thereon at the rate of 12%
per annum.

(b) That respondent Ablaza be reimbursed for expenses

incurred for the premiums on the performance bond which it posted, and
which petitioner had already accepted. (Decision, R.A., pp. 253 254).

"35. In addition, Secretary Romualdez also proposed the conclusion of

a new contract with respondent Ablaza for the construction of a more modest
regional o ce building at San Fernando, La Union, on a negotiated basis.
However, the sincerity and feasibility of this proposal was rendered dubious by a
caveat attached to it, as follows:
'4. Where auditing regulations would permit, the Central
Bank would enter into a negotiated contract with the said corporation
(Ablaza) for the construction work on the building on the basis of the
revised estimates.' (Annex '8' to Answer, R.A., p. 95)
"36. The revised cost xed for this proposed alternative regional o ce
building was xed at a maximum of P3,000,000.00 (compared to P3,749,000.00
under the contract originally awarded to respondent). (Annex '6-A' to Answer, R.A.,
p. 87)

"37. Needless perhaps to state, respondent Ablaza rejected the above

proposals (pars. 34 and 35, supra.), and on June 3, 1966, through counsel, wrote
to petitioner demanding the formal execution of the contract previously awarded
to it, or in the alternative, to pay 'all damages and expenses suffered by (it) in the
total amount of P1,181,950.00 . . .' ( Annex '7' to Answer, R.A., pp. 89-91; Decision,
id., p. 254)
"38. In a letter dated June 15, 1966, petitioner Central Bank, through
Deputy Governor Amado R. Briñas, replied to respondent Ablaza's demand
denying any liability on the basis of the following claim:

'(That, allegedly) in line with the agreement .. reached between

the Central Bank and Ablaza Construction and Finance Corporation at a
meeting . . . held . . . on May 20, 1966,' 'whatever agreements might
have been previously agreed upon between (petitioner and respondent)
would be considered set aside.' ( Decision, R.A., p. 255; Annex '8' to
Answer, id., pp. 93-96.)
"39. The above claim was, however, promptly and peremptorily denied
by respondent Ablaza, through counsel, in a letter dated June 16, 1966. (Partial
Stipulation of Facts, par. 9, R.A., p. 142, also Annex 'G' thereof; Commissioner's
Report, R.A., p. 185, Decision, id., p. 255.)" (Appellee's Brief, pars. 23 to 39, pp. 14-
19.)

None of these facts is seriously or in any event su ciently denied in petitioner's

CD Technologies Asia, Inc. 2019 cdasiaonline.com
 reply brief.
Considering all these facts, it is quite obvious that the Bank's insistence now
regarding the need for the execution of the formal contract comes a little too late to be
believable. Even assuming arguendo that the Revised Manual of Instructions to
Treasurers were applicable to the Central Bank, which is doubtful, considering that
under the provisions of its charter already referred to earlier, disbursements and
expenditures of the Bank are supposed to be governed by rules and regulations
promulgated by the Monetary Board, in this particular case, the attitude and actuations
then of the Bank in relation to the work being done by Ablaza prior to May 20, 1966
clearly indicate that both parties assumed that the actual execution of the written
contract is a mere formality which could not materially affect their respective
contractual rights and obligations. In legal effect, therefore, the Bank must be
considered as having waived such requirement.
To be more concrete, from December 15, 1965, when Ablaza accepted the award
of the contract in question, both parties were supposed to have seen to it that the
formal contract were duly signed. Under the Instructions to Bidders, Ablaza was under
obligation to sign the same within ve (5) days from notice of the award, and so, he
called on the Bank at various times for that purpose. The Bank never indicated until
May, 1966 that it would not comply. On the contrary, on February 8, 1966, Ablaza was
requested to submit a "schedule of deliveries of materials" which under the terms of the
bid were to be furnished by the Bank. On March 22, 1966, Ablaza received a letter from
the Bank inquiring as to who would be Ablaza's representative to sign the formal
contract. In the meanwhile, no less than Mr. Rizalino Mendoza, the Chairman of the
Management Building Committee of the Central Bank who had been signing for the
Bank all the communications regarding the project at issue, had visited the
construction site in March, 1966, just before he wrote the request abovementioned of
the 22nd of that month for the nomination of the representative to sign the formal
contract, and actually saw the progress of the work and that it was being continued, but
he never protested or had it stopped. All these despite the fact that the Memorandum
Circular being invoked by the Bank was issued was back on December 31, 1965 yet.
And when nally on May 20, 1966 the Bank met with the representatives of Ablaza
regarding the idea of changing the plans to more economical ones, there was no
mention of the non-execution of the contract as entitling the Bank to back out of it
unconditionally. Rather, the talk, according to the ndings of the lower courts, was
about the possibility of setting aside whatever agreement there was already. Under
these circumstances, it appears that respondent has been made to believe up to the
time the Bank decided de nitely not to honor any agreement at all that its execution
was not indispensable to a contract to be considered as already operating and
respondent could therefore proceed with the work, while the contract could be
formalized later.
Petitioner contends next that its withdrawal from the contract is justi ed by the
policy of economic restraint ordained by Memorandum Circular No. 1. We do not see it
that way. Inasmuch as the contract here in question was perfected before the issuance
of said Memorandum Circular, it is elementary that the same may not be enforced in
such a manner as to result in the impairment of the obligations of the contract, for that
is not constitutionally permissible. Not even by means of a statute, which is much more
weighty than a mere declaration of policy, may the government issue any regulation
relieving itself or any person from the binding effects of a contract. (Section 1 (10),
Article III, Philippine Constitution of 1953 and Section 11, Article IV, 1973 Constitution
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 of the Philippines.) Specially in the case of the Central Bank, perhaps, it might not have
been really imperative that it should have revised its plans, considering that it has its
own resources independent of those of the national government and that the funds of
the Central Bank are derived from its own operations, not from taxes. In any event, if the
memorandum circular had to be implemented, the corresponding action in that
direction should have been taken without loss of time and before the contract in
question had taken deeper roots. It is thus clear that in unjusti ably failing to honor its
contract with respondent, petitioner has to suffer the consequences of its action.
The last issue submitted for Our resolution refers to the amount of damages
awarded to Ablaza by the trial court and found by the Court of Appeals to be "fair and
reasonable." Again, after a review of the record, We do not nd su cient ground to
disturb the appealed judgment even in this respect, except as to attorney's fees.
There are three principal items of damages awarded by the courts below,
namely: (1) compensation for actual work done in the amount of P298,433.35, (2)
unrealized profits equivalent to 18% of the contract price of P3,749,000 or P674,820.00
and (3) 15% of the total recovery as attorney's fees in addition to the P5,000 already
paid as retaining fee. All of these items were the subject of evidence presented by the
parties. According to the Court of Appeals:
"As regards the accuracy and reasonableness of the award for damages,
both actual and compensatory, it is to be noted that the trial court subjected the
Commissioner's report and the evidence adduced therein to a careful scrutiny.
Thus, when the appellant called the trial court's attention to the fact that the
P814,190.00 unrealized expected pro t being claimed by appellee represented
18% of P4,523,275.00 which was the estimated cost of the project, while the
contract awarded to appellee was only in the amount of P3,749,000.00 as per its
bid proposal, the Court made the necessary modi cation. It is further to be noted
that the amount of 18% of the estimated cost considered in the said award is
much legs than that given by appellant's own expert witness, Ambrosio B. Flores.
He testi ed that 26% as contractor's pro t 'would be fair, ample and reasonable.'
(T.s.n. p. 557, Batalla.)" (P. 17 A, Appellant's brief.)

Basically, there are factual conclusions which We are not generally at liberty to
disregard. And We have not been shown that they are devoid of reasonable basis.
There can be no dispute as to the legal obligation of petitioner to pay respondent
the actual expenses it has incurred in performing its part of the contract.
Upon the other hand, the legal question of whether or not the Bank is liable for
unrealized pro ts presents no di culty. In Arrieta vs. Naric, G.R. No. L-15646, Jan. 31,
1964, 10 SCRA 79, this Court sustained as a matter of law the award of damages in the
amount of U.S. $286,000, payable in Philippine Currency, measured in the rate of
exchange prevailing at the time the obligation was incurred (August, 1952), comprising
of unrealized pro ts of the plaintiff, Mrs. Paz Arrieta, in a case where a government-
owned corporation, the Naric, failed to proceed with the purchase of imported rice after
having accepted and approved the bid of Arrieta and after she had already closed her
contract with her foreign sellers.
Actually, the law on the matter is unequivocally expressed in Articles 2200 and
2201 of the Civil Code thus:
"ART. 2200. Indemni cation for damages shall comprehend not only
the value of the loss suffered, but also that of the pro ts which the obligee failed
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 to obtain.

"ART. 2201. In contracts and quasicontracts, the damages for which

the obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties
have foreseen or could have reasonably foreseen at the time the obligation was
constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation."

Construing these provisions, the following is what this Court held in Cerrano vs.
Tan Chuco, 38 Phil. 392:
". . . Article 1106 (now 2200) of the Civil Code establishes the rule that
prospective pro ts may be recovered as damages, while article 1107 (now 2201)
of the same Code provides that the damages recoverable for the breach of
obligations not originating in fraud (dolo) are those which were or might have
been foreseen at the time the contract was entered into. Applying these principles
to the facts in this case, we think that it is unquestionable that defendant must be
deemed to have foreseen at the time he made the contract that in the event of his
failure to perform it, the plaintiff would be damaged by the loss of the pro t he
might reasonably have expected to derive from its use.

"When the existence of a loss is established, absolute certainty as to its

amount is not required. The bene t to be derived from a contract which one of the
parties has absolutely failed to perform is of necessity to some extent, a matter of
speculation, but the injured party is not to be denied all remedy for that reason
alone. He must produce the best evidence of which his case is susceptible and if
that evidence warrants the inference that he has been damaged by the loss of
pro ts which he might with reasonable certainty have anticipated but for the
defendant's wrongful act, he is entitled to recover. As stated in Sedgwick on
Damages (Ninth Ed., par. 177):
'The general rule is, then, that a plaintiff may recover compensation for any
gain which he can make it appear with reasonable certainty the defendant's
wrongful act prevented him from acquiring, . . .' (See also Algarra vs. Sandejas, 27
Phil. Rep., 284, 289; Hicks vs. Manila Hotel Co., 28 Phil. Rep., 325.)" (At pp. 398-
399.)

Later, in General Enterprises, Inc. vs. Lianga Bay Logging Co. Inc., 11 SCRA 733,
Article 2200 of the Civil Code was again applied as follows:
"Regarding the actual damages awarded to appellee, appellant contends
that they are unwarranted inasmuch as appellee has failed to adduce any
evidence to substantiate them even assuming arguendo that appellant has failed
to supply the additional monthly 2,000,000 board feet for the remainder of the
period agreed upon in the contract Exhibit A. Appellant maintains that for appellee
to be entitled to demand payment of sales that were not effected it should have
proved (1) that there are actual sales made of appellee's logs which were not
ful lled, (2) that it had obtained the best price for such sales, (3) that there are
buyers ready to buy at such price stating the volume they are ready to buy, and (4)
appellee could not cover the sales from the loss of other suppliers. Since these
facts were not proven, appellee's right to unearned commissions must fail.

CD Technologies Asia, Inc. 2019 cdasiaonline.com

 This argument must be overruled in the light of the law and evidence on
the matter. Under Article 2200 of the Civil Code, indemni cation for damages
comprehends not only the value of the loss suffered but also that of the pro ts
which the creditor fails to obtain. In other words, lucrum cessans is also a basis
for indemni cation. The question then that arises is: Has appellee failed to make
pro ts because of appellant's breach of contract, and in the a rmative, is there
here basis for determining with reasonable certainty such unearned profits?
Appellant's memorandum (p. 9) shows that appellee has sold to Korea
under the contract in question the following board feet of logs, Breareton Scale:

Months Board Feet

From June to August 1959 3,007,435

Months Board Feet

From June to August 1959 3,007,435

September, 1959 none
October, 1959 2,299,805
November, 1959 801,021
December, 1959 1,297,510
————
Total 7,405,861

The above gures tally with those of Exhibit N. In its brief (p. 141)
appellant claims that in less than six months' time appellee received by way of
commission the amount of P117,859.54, while in its memorandum, appellant
makes the following statement:
'11. The invoice F.O.B. price of the sale through plaintiff General is
P767,798.82 but the agreed F.O.B. price was P799,319.00; the commission at 13%
(F.O.B.) is P117,859.54. But, as there were always two prices — Invoice F.O.B.
price and F.O.B. price as per contract, because of the sales difference amounting
to P31,920.18, and the same was deducted from the commission, the
commission, actually paid to plaintiff General is only P79,580.82.'

"It appears, therefore, that during the period of June to December, 1959, in
spite of the short delivery incurred by appellant, appellee had been earning its
commission whenever logs were delivered to it. But from January, 1960, appellee
had ceased to earn any commission because appellant failed to deliver any log in
violation of their agreement. Had appellant continued to deliver the logs as it was
bound to pursuant to the agreement it is reasonable to expect that it would have
continued earning its commission in much the same manner as it need to in
connection with the previous shipments of logs, which clearly indicates that it
failed to earn the commissions it should earn during this period of time. And this
commission is not di cult to estimate. Thus, during the seventeen remaining
months of the contract, at the rate of at least 2,000,000 board feet, appellant
should have delivered thirty-four million board feet. If we take the number of
board feet delivered during the months prior to the interruption, namely, 7,405,861
board feet, and the commission received by appellee thereon, which amounts to
P79,580.82, we would have that appellee received a commission of P.0107456
per board feet. Multiplying 34 million board feet by P.0107456, the product is
P365,350.40, which represents the lucrum cessans that should accrue to appellee.
The award therefore, made by the court a quo of the amount of P400,000.00 as
CD Technologies Asia, Inc. 2019 cdasiaonline.com
 compensatory damages is not speculative, but based on reasonable estimate."

In the light of these considerations, We cannot say that the Court of Appeals
erred in making the aforementioned award of damages for unrealized pro ts to
respondent Ablaza.
With respect to the award for attorney's fees, We believe that in line with the
amount xed in Lianga, supra, an award of ten per centum (10%) of the amount of the
total recovery should be enough.
PREMISES CONSIDERED, the decision of the Court of Appeals in this case is
a rmed, with the modi cation that the award for attorney's fees made therein is
hereby reduced to ten per centum (10%) of the total recovery of respondent Ablaza.
Costs against petitioner.
Fernando , Antonio, Aquino and Concepcion, JJ ., concur.

Footnotes

1. This was before Section 607 was amended by Act 3441 by including chartered cities in
the provision.
2. According to the stipulation of facts of the parties, "the contract for the general
construction work for the Central Bank Regional O ce Building in San Fernando, La
Union was awarded to plaintiff." (Par. 4 thereof.)

CD Technologies Asia, Inc. 2019 cdasiaonline.com