Central Bank v. Ablaza Construction
REITERATIONFacts
The Antecedents: The Central Bank of the Philippines (petitioner) formally awarded the contract for the construction of its San Fernando, La Union branch building to Ablaza Construction & Finance Corporation (respondent) in December 1965, following a bidding process. Respondent was allowed to commence work in January 1966, and by May 1966, had completed approximately 20% of the excavation work. Petitioner, citing a policy of fiscal restraint, requested respondent to stop work and proposed revisions to the plans and price. Respondent rejected these proposals and demanded the formal execution of the contract or payment of damages. Procedural History: The Court of First Instance of Rizal ruled in favor of respondent, sentencing petitioner to pay damages for breach of contract. The Court of Appeals affirmed this judgment. The Petition: Petitioner Central Bank seeks review of the Court of Appeals' decision, arguing that no perfected contract existed due to non-compliance with statutory requirements for government contracts and that no breach of contract occurred.
Issue(s)
Whether a perfected contract existed between the Central Bank and Ablaza Construction & Finance Corporation. Whether the Central Bank committed a breach of contract. Whether the Central Bank is liable for damages, including actual and compensatory damages, unrealized profits, attorney's fees, and costs.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, holding that a perfected contract existed and that the Central Bank breached its obligations. The award for damages was affirmed, with a modification reducing the attorney's fees.
Ratio Decidendi
On the existence of a perfected contract: The Court held that a perfected contract existed. While formal execution is typically required, the Court found that the Central Bank's actions, including the formal award, allowing the contractor to commence work, requesting progress reports, and inquiring about the signatory for the formal contract, demonstrated a waiver of the strict requirement for immediate formal execution. The Court emphasized that the Instructions to Bidders, particularly IB 114.1, indicated that failure to execute the contract after award constituted a breach, implying that the award itself created an actionable agreement. The Court rejected the argument that Sections 607 and 608 of the Revised Administrative Code, requiring certification of fund availability, applied to the Central Bank, citing its autonomous corporate nature and the repeal of relevant administrative orders. On the breach of contract: The Court found that the Central Bank breached the contract. The Bank's unilateral decision to suspend work and revise plans based on a policy of fiscal restraint, after the contract was effectively perfected and work had commenced, constituted a failure to comply with its contractual obligations. The Court noted that the Memorandum Circular on fiscal restraint could not impair existing contractual obligations and that the Bank's actions were taken too late to be justified. On the award of damages: The Court affirmed the award for actual damages, including expenses for site preparation, excavation, equipment rental, hauling fees, and premiums on the performance bond. It also upheld the award for unrealized profits, citing Articles 2200 and 2201 of the Civil Code, which allow recovery for loss suffered and profits not obtained. The Court found the 18% profit margin to be reasonable, supported by expert testimony and precedent. However, the award for attorney's fees was reduced to 10% of the total recovery, aligning with established jurisprudence.
Main Doctrine
A government corporation's acceptance of a bid, followed by the contractor's commencement of work with the corporation's permission and subsequent actions indicating assumption of contractual obligations, can constitute a perfected contract, even without formal execution, thereby binding the corporation to its commitments and making it liable for damages upon breach.