Admin Cases on Chapter 1

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CASES ON CHAPTER 1

G.R. No. 1051, U.S. v. Dorr et al., 2

Phil. 332Republic of the Philippines

SUPREME COURT

Manila

EN BANC

May 19, 1903

G.R. No. 1051

THE UNITED STATES,complainant-appellee,

vs.

FRED L. DORR, ET AL.,defendants-appellants.

F. G. Waite for appellants.

Solicitor-General Araneta for appellee.

LADD, J.:

The defendants have been convicted upon a complaint charging them with the offenseof writing, publishing, and circulating a scurrilous libel against the Government of the

United States and the Insular Government of the Philippine Islands. The complaint is

based upon section 8 ofAct No. 292 of the Commission, which is as follows:

Every person who shall utter seditious words or speeches, write, publish, or

circulate scurrilous libels against the Government of the United States or the

Insular Government of the Philippine Islands, or which tend to disturb or

obstruct any lawful officer in executing his office, or which tend to instigate

others to cabal or meet together for unlawful purposes, or which suggest orincite rebellious conspiracies or riots, or which tend to stir up the people against

the lawful authorities, or to disturb the peace of the community, the safety and

order of the Government, or who shall knowingly conceal such evil practices,

shall be punished by a fine not exceeding two thousand dollars or by

imprisonment not exceeding two years, or both, in the discretion of the court.
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The alleged libel was published as an editorial in the issue of the "Manila Freedom" of

April 6, 1902, under the caption of "A few hard facts."

The Attorney-General in his brief indicates the following passages of the article as

those upon which he relies to sustain the conviction:

Sidney Adamson, in a late letter in "Leslie's Weekly," has the following to say

of the action of the Civil Commission in appointing rascally natives to

important Government positions:

"It is a strong thing to say, but nevertheless true, that the Civil

Commission, through its ex-insurgent office holders, and by its continual

disregard for the records of natives obtained during the military rule of

the Islands, has, in its distribution of offices, constituted a protectorate

over a set of men who should be in jail or deported. . . . [Reference is

then made to the appointment of one Tecson as justice of the peace.]

This is the kind of foolish work that the Commission is doing all over the

Islands, reinstating insurgents and rogues and turning down the men who

have during the struggle, at the risk of their lives, aided the Americans."

xxx xxx xxx

There is no doubt but that the Filipino office holders of the Islands are in a

good many instances rascals.

xxx xxx xxx

The commission has exalted to the highest positions in the Islands Filipinos

who are alleged to be notoriously corrupt and rascally, and men of no personalcharacter.

xxx xxx xxx


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Editor Valdez, of "Miau," made serious charges against two of the native

Commissionerscharges against Trinidad H. Pardo de Tavera, which, if true, would

brand the man as a coward and a rascal, and with what result? . . . [Reference is then

made to the prosecution and conviction of Valdez for libel "under a law which

specifies that the greater the truth the greater the libel."] Is it the desire of the people

of the United States that the natives against whom these charges have been made

(which, if true, absolutely vilify their personal characters) be permitted to retain their

seats on the Civil Commission, the executive body of the Philippine Government,

without an investigation?

xxx xxx xxx

It is a notorious fact that many branches of the Government organized by the

Civil Commission are rotten and corrupt. The fiscal system, upon which life,

liberty, and justice depends, is admitted by the Attorney-General himself to be

most unsatisfactory. It is a fact that the Philippine judiciary is far from being

what it should. Neither fiscals nor judges can be persuaded to convict

insurgents when they wish to protect them.

xxx xxx xxx

Now we hear all sorts of reports as to rottenness existing in the province [of

Tayabas], and especially the northern end of it; it is said that it is impossible to

secure the conviction of lawbreakers and outlaws by the native justices, or a

prosecution by the native fiscals.

xxx xxx xxx

The long and short of it is that Americans will not stand for an arbitrarygovernment, especially when evidences of carpetbagging and rumors of graft

are too thick to be pleasant.

We do not understand that it is claimed that the defendants succeeded in establishing

at the trial the truth of any of the foregoing statements. The only question which we


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have considered is whether their publication constitutes an offense under section 8

ofAct No. 292,above cited.

Several allied offenses or modes of committing the same offense are defined in that

section, viz: (1) The uttering of seditious words or speeches; (2) the writing,

publishing, or circulating of scurrilous libels against the Government of the United

States or the Insular Government of the Philippine Islands; (3) the writing, publishing,

or circulating of libels which tend to disturb or obstruct any lawful officer in

executing his office; (4) or which tend to instigate others to cabal or meet together for

unlawful purposes; (5) or which suggest or incite rebellious conspiracies or riots; (6)

or which tend to stir up the people against the lawful authorities or to disturb the peace

of the community, the safety and order of the Government; (7) knowingly concealing

such evil practices.The complaint appears to be framed upon the theory that a writing, in order to be

punishable as a libel under this section, must be of a scurrilous nature and directed

against the Government of the United States or the Insular Government of the

Philippine Islands, and must, in addition, tend to some one of the results enumerated

in the section. The article in question is described in the complaint as "a scurrilous

libel against the Government of the United States and the Insular Government of the

Philippine Islands, which tends to obstruct the lawful officers of the United States and

the Insular Government of the Philippine Islands in the execution of their offices, andwhich tends to instigate others to cabal and meet together for unlawful purposes, and

which suggests and incites rebellious conspiracies, and which tends to stir up the

people against the lawful authorities, and which disturbs the safety and order of the

Government of the United States and the Insular Government of the Philippine

Islands." But it is "a well-settled rule in considering indictments that where an offense

may be committed in any of several different modes, and the offense, in any particular

instance, is alleged to have been committed in two or more modes specified, it is

sufficient to prove the offense committed in any one of them, provided that it be suchas to constitute the substantive offense" (Com. vs.Kneeland, 20 Pick., Mass., 206,

215), and the defendants may, therefore, be convicted if any one of the substantive

charges into which the complaint may be separated has been made out.

We are all, however, agreed upon the proposition that the article in question has no

appreciable tendency to "disturb or obstruct any lawful officer in executing his


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office," or to "instigate" any person or class of persons "to cabal or meet together for

unlawful purposes," or to "suggest or incite rebellious conspiracies or riots," or to "stir

up the people against the lawful authorities or to disturb the peace of the community,

the safety and order of the Government." All these various tendencies, which are

described in section 8 ofAct No. 292,each one of which is made an element of a

certain form of libel, may be characterized in general terms as seditious tendencies.

This is recognized in the description of the offenses punished by this section, which is

found in the title of the act, where they are defined as the crimes of the "seditious

utterances, whether written or spoken."

Excluding from consideration the offense of publishing "scurrilous libels against the

Government of the United States or the Insular Government of the Philippine Islands,"

which may conceivably stand on a somewhat different footing, the offenses punishedby this section all consist in inciting, orally or in writing, to acts of disloyalty or

disobedience to the lawfully constituted authorities in these Islands. And while the

article in question, which is, in the main, a virulent attack against the policy of the

Civil Commission in appointing natives to office, may have had the effect of exciting

among certain classes dissatisfaction with the Commission and its measures, we are

unable to discover anything in it which can be regarded as having a tendency to

produce anything like what may be called disaffection, or, in other words, a state of

feeling incompatible with a disposition to remain loyal to the Government andobedient to the laws. There can be no conviction, therefore, for any of the offenses

described in the section on which the complaint is based, unless it is for the offense of

publishing a scurrilous libel against the Government of the of the United States or the

Insular Government of the Philippine Islands.

Can the article be regarded as embraced within the description of "scurrilous libels

against the Government of the United States or the Insular Government of the

Philippine Islands?" In the determination of this question we have encountered greatdifficulty, by reason of the almost entire lack of American precedents which might

serve as a guide in the construction of the law. There are, indeed, numerous English

decisions, most of them of the eighteenth century, on the subject of libelous attacks

upon the "Government, the constitution, or the law generally," attacks upon the

Houses of Parliament, the Cabinet, the Established Church, and other governmental


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organisms, but these decisions are not now accessible to us, and, if they were, they

were made under such different conditions from those which prevail at the present

day, and are founded upon theories of government so foreign to those which have

inspired the legislation of which the enactment in question forms a part, that they

would probably afford but little light in the present inquiry. In England, in the latter

part of the eighteenth century, any "written censure upon public men for their conduct

as such," as well as any written censure "upon the laws or upon the institutions of the

country," would probably have been regarded as a libel upon the Government. (2

Stephen, History of the Criminal Law of England, 348.) This has ceased to be the law

in England, and it is doubtful whether it was ever the common law of any American

State. "It is true that there are ancient dicta to the effect that any publication tending to

"possess the people with an ill opinion of the Government" is a seditious libel ( perHolt, C. J., in R. vs.Tuchin, 1704, 5 St. Tr., 532, and Ellenborough, C. J., in

R. vs.Cobbett, 1804, 29 How. St. Tr., 49), but no one would accept that doctrine now.

Unless the words used directly tend to foment riot or rebellion or otherwise to disturb

the peace and tranquility of the Kingdom, the utmost latitude is allowed in the

discussion of all public affairs." (11 Enc. of the Laws of England, 450.) Judge Cooley

says (Const. Lim., 528): "The English common law rule which made libels on the

constitution or the government indictable, as it was administered by the courts, seems

to us unsuited to the condition and circumstances of the people of America, andtherefore never to have been adopted in the several States."

We find no decisions construing the Tennessee statute (Code, sec. 6663), which is

apparently the only existing American statute of a similar character to that in question,

and from which much of the phraseology of then latter appears to have been taken,

though with some essential modifications.

The important question is to determine what is meant in section 8 ofAct No. 292by

the expression "the Insular Government of the Philippine Islands." Does it mean in ageneral and abstract sense the existing laws and institutions of the Islands, or does it

mean the aggregate of the individuals by whom the government of the Islands is, for

the time being, administered? Either sense would doubtless be admissible.

We understand, in modern political science, . . . by the termgovernment, that

institution or aggregate of institutions by which an independent society makes and


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mean only defamatory words; but words written, if obscene, blasphemous, or

seditious, are technically called libels, and the publication of them is, by the law of

England, an indictable offense." (Bradlaugh vs.The Queen, 3 Q. B. D., 607, 627, per

Bramwell L. J. See Com. vs.Kneeland, 20 Pick., 206, 211.)

While libels upon forms of government, unconnected with defamation of individuals,

must in the nature of things be of uncommon occurrence, the offense is by no means

an imaginary one. An instance of a prosecution for an offense essentially of this

nature is Republica vs.Dennie, 4 Yeates (Pa.), 267, where the defendant was indicted

"as a factious and seditious person of a wicked mind and unquiet and turbulent

disposition and conversation, seditiously, maliciously, and willfully intending, as

much as in him lay, to bring into contempt and hatred the independence of the United

States, the constitution of this Commonwealth and of the United States, to excitepopular discontent and dissatisfaction against the scheme of polity instituted, and

upon trial in the said United States and in the said Commonwealth, to molest, disturb,

and destroy the peace and tranquility of the said United States and of the said

Commonwealth, to condemn the principles of the Revolution, and revile, depreciate,

and scandalize the characters of the Revolutionary patriots and statesmen, to

endanger, subvert, and totally destroy the republican constitutions and free

governments of the said United States and this Commonwealth, to involve the said

United States and this Commonwealth in civil war, desolation, and anarchy, and toprocure by art and force a radical change and alteration in the principles and forms of

the said constitutions and governments, without the free will, wish, and concurrence

of the people of the said United States and this Commonwealth, respectively," the

charge being that "to fulfill, perfect, and bring to effect his wicked, seditious, and

detestable intentions aforesaid he . . . falsely, maliciously, factiously, and seditiously

did make, compose, write, and publish the following libel, to wit; 'A democracy is

scarcely tolerable at any period of national history. Its omens are always sinister and

its powers are unpropitious. With all the lights or experience blazing before our eyes,it is impossible not to discover the futility of this form of government. It was weak

and wicked at Athens, it was bad in Sparta, and worse in Rome. It has been tried in

France and terminated in despotism. it was tried in England and rejected with the

utmost loathing and abhorrence. It is on its trial here and its issue will be civil war,

desolation, and anarchy. No wise man but discerns its imperfections; no good man but


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shudders at its miseries; no honest man but proclaims its fraud, and no brave man but

draws his sword against its force. The institution of a scheme of polity so radically

contemptible and vicious is a memorable example of what the villainy of some men

can devise, the folly of others receive, and both establish, in despite of reason,

reflection, and sensation.'"

An attack upon the lawfully established system of civil government in the Philippine

Islands, like that which Dennie was accused of making upon the republican form of

government lawfully established in the United States and in the State of Pennsylvania

would, we think, if couched in scandalous language, constitute the precise offense

described in section 8 ofAct No. 292 as a scurrilous libel against the Insular

Government of the Philippine Islands.

Defamation of individuals, whether holding official positions or not, and whetherdirected to their public conduct or to their private life, may always be adequately

punished under the general libel law. Defamation of the Civil Commission as an

aggregation, it being "a body of persons definite and small enough for its individual

members to be recognized as such" (Stephen, Digest of the Criminal Law, art. 277), as

well as defamation of any of the individual members of the Commission or of the

Civil Governor, either in his public capacity or as a private individual, may be so

punished. The general libel law enacted by the Commission was in force whenAct

No. 292,was passed. There was no occasion for any further legislation on the subjectof libels against the individuals by whom the Insular Government is administered

against the Insular Government in the sense of the aggregate of such individuals.

There was occasion for stringent legislation against seditious words or libels, and that

is the main if not the sole purpose of the section under consideration. It is not

unreasonable to suppose that the Commission, in enacting this section, may have

conceived of attacks of a malignant or scurrilous nature upon the existing political

system of the United States, or the political system established in these Islands by the

authority of the United States, as necessarily of a seditious tendency, but it is not soreasonable to suppose that they conceived of attacks upon the personnel of the

government as necessarily tending to sedition. Had this been their view it seems

probable that they would, like the framers of the Sedition Act of 1798, have expressly

and specifically mentioned the various public officials and collegiate governmental

bodies defamation of which they meant to punish as sedition.
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The article in question contains no attack upon the governmental system of the United

States, and it is quite apparent that, though grossly abusive as respects both the

Commission as a body and some of its individual members, it contains no attack upon

the governmental system by which the authority of the United States is enforced in

these Islands. The form of government by a Civil Commission and a Civil Governor is

not assailed. It is the character of the men who are intrusted with the administration of

the government that the writer is seeking to bring into disrepute by impugning the

purity of their motives, their public integrity, and their private morals, and the wisdom

of their policy. The publication of the article, therefore, no seditious tendency being

apparent, constitutes no offense underAct No. 292,section 8.

The judgment of conviction is reversed and the defendants are acquitted, with costs de

oficio.


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EN BANC

[G.R. No. L-9657. November 29, 1956.]

LEOPOLDO T. BACANI and MATEO A. MATOTO, Plaintiffs-Appellees, vs. NATIONAL COCONUT

CORPORATION, ET AL., Defendants, NATIONAL COCONUT CORPORATION and BOARD OF

LIQUIDATORS, Defendants-Appellants.

D E C I S I O N

BAUTISTA ANGELO,J.:

Plaintiffsherein are court stenographers assigned in Branch VI of the Court of First Instance of Manila.

During the pendency of Civil Case No. 2293 of said court, entitled Francisco Sycip vs. National Coconut

Corporation, Assistant Corporate Counsel Federico Alikpala, counsel forDefendant, requested said

stenographers for copies of the transcript of the stenographic notes taken by them during the

hearing. Plaintiffscomplied with the request by delivering to Counsel Alikpala the needed transcript

containing 714 pages and thereafter submitted to him their bills for the payment of their fees. The

National Coconut Corporation paid the amount of P564 to Leopoldo T. Bacani and P150 to Mateo A.Matoto for said transcript at the rate of P1 per page.

Upon inspecting the books of this corporation, the Auditor General disallowed the payment of these

fees and sought the recovery of the amounts paid. On January 19, 1953, the Auditor General required

the Plaintiffsto reimburse said amounts on the strength of a circular of the Department of Justice

wherein the opinion was expressed that the National Coconut Corporation, being a government entity,

was exempt from the payment of the fees in question. On February 6, 1954, the Auditor General issued

an order directing the Cashier of the Department of Justice to deduct from the salary of Leopoldo T.

Bacani the amount of P25 every payday and from the salary of Mateo A. Matoto the amount of P10

every payday beginning March 30, 1954. To prevent deduction of these fees from their salaries and

secure a judicial ruling that the National Coconut Corporation is not a government entity within the

purview of section 16, Rule 130 of the Rules of Court, this action was instituted in the Court of FirstInstance of Manila.

Defendantsset up as a defense that the National Coconut Corporation is a government entity within the

purview of section 2 of the Revised Administrative Code of 1917 and, hence, it is exempt from paying

the stenographers fees under Rule 130 of the Rules of Court. After trial, the court found for

the Plaintiffsdeclaring (1) thatDefendantNational Coconut Corporation is not a government entity

within the purview of section 16, Rule 130 of the Rules of Court; chanroblesvirtualawlibrary(2) that the payments already made

by said Defendantto Plaintiffsherein and received by the latter from the former in the total amount of

P714, for copies of the stenographic transcripts in question, are valid, just and legal; ch a n r o b le s v i rt u a l aw l i b ra r yand (3)

that Plaintiffsare under no obligation whatsoever to make a refund of these payments already received

by them. This is an appeal from said decision.

Under section 16, Rule 130 of the Rules of Court, the Government of the Philippines is exempt from

paying the legal fees provided for therein, and among these fees are those which stenographers may

charge for the transcript of notes taken by them that may be requested by any interested person

(section 8). The fees in question are for the transcript of notes taken during the hearing of a case in

which the National Coconut Corporation is interested, and the transcript was requested by its assistant

corporate counsel for the use of said corporation.


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On the other hand, section 2 of the Revised Administrative Code defines the scope of the term

Government of the Republic of the Philippines as follows:chanroblesvirtuallawlibrary

The Government of the Philippine Islands is a term which refers to the corporate governmental entity

through which the functions of government are exercised throughout the Philippine Islands, including,

save as the contrary appears from the context, the various arms through which political authority is

made effective in said Islands, whether pertaining to the central Government or to the provincial ormunicipal branches or other form of local government.

The question now to be determined is whether the National Coconut Corporation may be considered as

included in the term Government of the Republic of the Philippines for the purposes of the exemption

of the legal fees provided for in Rule 130 of the Rules of Court.

As may be noted, the term Government of the Republic of the Philippines refers to a government

entity through which the functions of government are exercised, including the various arms through

which political authority is made effective in the Philippines, whether pertaining to the central

government or to the provincial or municipal branches or other form of local government. This requires

a little digression on the nature and functions of our government as instituted in our Constitution.

To begin with, we state that the term Government may be defined as that institution or aggregate ofinstitutions by which an independent society makes and carries out those rules of action which are

necessary to enable men to live in a social state, or which are imposed upon the people forming that

society by those who possess the power or authority of prescribing them (U.S. vs. Dorr, 2 Phil., 332).

This institution, when referring to the national government, has reference to what our Constitution has

established composed of three great departments, the legislative, executive, and the judicial, through

which the powers and functions of government are exercised. These functions are twofold:chanroblesvirtuallawlibraryconstitute

and ministrant. The former are those which constitute the very bonds of society and are compulsory in

nature; chan roblesvirtualawlibrarythe latter are those that are undertaken only by way of advancing the general interests of

society, and are merely optional. President Wilson enumerates the constituent functions as follows:chanroblesvirtuallawlibrary

(1) The keeping of order and providing for the protection of persons and property from violence and

robbery.

(2) The fixing of the legal relations between man and wife and between parents and children.

(3) The regulation of the holding, transmission, and interchange of property, and the determination of

its liabilities for debt or for crime.

(4) The determination of contract rights between individuals.

(5) The definition and punishment of crime.

(6) The administration of justice in civil cases.

(7) The determination of the political duties, privileges, and relations of citizens.

(8) Dealings of the state with foreign powers:chanroblesvirtuallawlibrary

the preservation of the state from external danger orencroachment and the advancement of its international interests. (Malcolm, The Government of the

Philippine Islands, p. 19.)

The most important of the ministrant functions are:chanroblesvirtuallawlibrarypublic works, public education, public charity,

health and safety regulations, and regulations of trade and industry. The principles deter mining

whether or not a government shall exercise certain of these optional functions are:chanroblesvirtuallawlibrary (1) that a

government should do for the public welfare those things which private capital would not naturally

undertake and (2) that a government should do these things which by its very nature it is better


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equipped to administer for the public welfare than is any private individual or group of individuals.

(Malcolm, The Government of the Philippine Islands, pp. 19-20.)

From the above we may infer that, strictly speaking, there are functions which our government is

required to exercise to promote its objectives as expressed in our Constitution and which are exercised

by it as an attribute of sovereignty, and those which it may exercise to promote merely the welfare,

progress and prosperity of the people. To this latter class belongs the organization of those corporationsowned or controlled by the government to promote certain aspects of the economic life of our people

such as the National Coconut Corporation. These are what we call government-owned or controlled

corporations which may take on the form of a private enterprise or one organized with powers and

formal characteristics of a private corporations under the Corporation Law.

The question that now arises is: chanroblesvirtuallawlibrary Does the fact that these corporation perform certain functions of

government make them a part of the Government of the Philippines?

The answer is simple:chanroblesvirtuallawlibrary they do not acquire that status for the simple reason that they do not come

under the classification of municipal or public corporation. Take for instance the National Coconut

Corporation. While it was organized with the purpose of adjusting the coconut industry to a position

independent of trade preferences in the United States and of providing Facilities for the better curing

of copra products and the proper utilization of coconut by-products, a function which our government

has chosen to exercise to promote the coconut industry, however, it was given a corporate power

separate and distinct from our government, for it was made subject to the provisions of our Corporation

Law in so far as its corporate existence and the powers that it may exercise are concerned (sections 2

and 4, Commonwealth Act No. 518). It may sue and be sued in the same manner as any other private

corporations, and in this sense it is an entity different from our government. As this Court has aptly said,

The mere fact that the Government happens to be a majority stockholder does not make it a public

corporation (National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). By becoming a

stockholder in the National Coal Company, the Government divested itself of its sovereign character so

far as respects the transactions of the corporationcralaw . Unlike the Government, the corporation may be

sued without its consent, and is subject to taxation. Yet the National Coal Company remains an agency

or instrumentality of government. (Government of the Philippine Islands vs. Springer, 50 Phil., 288.)

To recapitulate, we may mention that the term Government of the Republic of the Philippines used in

section 2 of the Revised Administrative Code refers only to that government entity through which the

functions of the government are exercised as an attribute of sovereignty, and in this are included those

arms through which political authority is made effective whether they be provincial, municipal or other

form of local government. These are what we call municipal corporations. They do not include

government entities which are given a corporate personality separate and distinct from the government

and which are governed by the Corporation Law. Their powers, duties and liabilities have to be

determined in the light of that law and of their corporate charters. They do not therefore come within

the exemption clause prescribed in section 16, Rule 130 of our Rules of Court.

Public corporations are those formed or organized for the government of a portion of the State.

(Section 3, Republic Act No. 1459, Corporation Law).

Thegenerally accepted definition of a municipal corporation would only include organized cities and

towns, and like organizations, with political and legislative powers for the local, civil government and

police regulations of the inhabitants of the particular district included in the boundaries of the

corporation. Heller vs. Stremmel, 52 Mo. 309, 312.

In its more general sense the phrase municipal corporation may include both towns and counties, and

other public corporations created by government for political purposes. In its more common and limited


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signification, it embraces only incorporated villages, towns and cities. Dunn vs. Court of County

Revenues, 85 Ala. 144, 146, 4 So. 661. (McQuillin, Municipal Corporations, 2nd ed., Vol. 1, p. 385.)

We may, therefore, define a municipal corporation in its historical and strict sense to be the

incorporation, by the authority of the government, of the inhabitants of a particular place or district,

and authorizing them in their corporate capacity to exercise subordinate specified powers of legislation

and regulation with respect to their local and internal concerns. This power of local government is thedistinctive purpose and the distinguishing feature of a municipal corporation proper. (Dillon, Municipal

Corporations, 5th ed., Vol. I, p. 59.)

It is true that under section 8, Rule 130, stenographers may only charge as fees P0.30 for each page of

transcript of not less than 200 words before the appeal is taken and P0.15 for each page after the filing

of the appeal, but in this case the National Coconut Corporation has agreed and in fact has paid P1.00

per page for the services rendered by the Plaintiffsand has not raised any objection to the amount paid

until its propriety was disputed by the Auditor General. The payment of the fees in question became

therefore contractual and as such is valid even if it goes beyond the limit prescribed in section 8, Rule

130 of the Rules of Court.

As regards the question of procedure raised byAppellants, suffice it to say that the same is insubstantial,

considering that this case refers not to a money claim disapproved by the Auditor General but to an

action of prohibition the purpose of which is to restrain the officials concerned from deducting

from Plaintiffs salaries the amount paid to them as stenographers fees. This case does not come under

section 1, Rule 45 of the Rules of Court relative to appeals from a decision of the Auditor General.

Wherefore, the decision appealed from is affirmed, without pronouncement as to costs


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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

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

CENTRAL BANK OF THE PHILIPPINES, petitioner,vs.COURT OF APPEALS and ABLAZA CONSTRUCTION & FINANCECORPORATION, respondents.

F.E. Evangelista for petitioner.

Cruz, Villarin & Laureta for private respondent.

BARREDO, J .:+. wph!1

Petition of the Central Bank of the Philippines for review of the decision of the Court of Appeals inCA-G.R. No. 43638-R affirming the judgment of the Court of First Instance of Rizal in Civil Case No.Q-10919 sentenced petitioner to pay respondent Ablaza Construction and Finance Corporationdamages for breach contract in that after having formally and officially awarded, pursuant to theresults of the usual bidding to Ablaza in December 1965 the "contract" for the construction of its SanFernando, La Union branch building and allowed said contractor to commence the work up to aboutMay, 1966, albeit without any written formal contract having been executed, the Bank failed and

refused to proceed with the project, unless the plans were revised and a lower price were agreed toby Ablaza, the Bank claiming that its action was pursuant to the policy of fiscal restraint announcedby the then new President of the Philippines on December 30, 1965 and the Memorandum CircularNo. 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 trialcourt, which the Court of Appeals affirmed without modification: t.hqw

Sometime in 1965, defendant Central Bank of the Philippines issued Invitations toBid and Instructions to Bidders for the purpose of receiving sealed proposals for thegeneral construction of its various proposed regional offices, including the CentralBank regional office building in San Fernando, La Union.

In response to the aforesaid Invitations to Bid, the plaintiff Ablaza Construction andFinance Corporation, which was one of the qualified bidders, submitted a bidproposal for the general construction of defendant's proposed regional office buildingin San Fernando, La Union at the public bidding held on November 3, 1965. The saidproposal was, as required by the defendant accompanied by a cash bidder's bond inthe sum of P275,000.00.


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On December 7, 1965, the Monetary Board of the defendant Central Bank of thePhilippines, after evaluating all the bid proposals submitted during the above-mentioned bidding, unanimously voted and approved the award to the plaintiff of thecontract for the general construction of defendant's proposed regional office buildingin San Fernando, La Union, for the sum of P3,749,000.00 under plaintiff's ProposalItem No. 2.

Pursuant thereto, on December 10, 1965, Mr. Rizalino L. Mendoza, Assistant to theGovernor and concurrently the Chairman of the Management Building Committee ofthe defendant Central Bank of the Philippines, set a telegram to the plaintiff,informing the latter that the contract for the general construction of defendant'sproposed regional office building in San Fernando, La Union, had been awarded tothe plaintiff. The said telegram was followed by a formal letter, also dated December10, 1965, duly signed by said Mr. Rizalino L. Mendoza, confirming the approval ofthe award of the above-stated contract under plaintiff's Proposal Item No. 2 in theamount of P3,749,000.00.

Upon receipt of the aforementioned letter, plaintiff immediately accepted the saidaward by means of a letter dated December 15, 1965, whereby plaintiff alsorequested permission for its workmen to enter the site of the project, build atemporary shelter and enclosure, and do some clearing job thereat. Accordingly, saidpermission was granted by the defendant as embodied in its letter dated January 4,1966, addressed to the plaintiff..

Within five (5) days from receipt by the plaintiff of the said notice of award, andseveral times thereafter Mr. Nicomedes C. Ablaza, an officer of the plaintiffcorporation, went personally to see Mr. Rizalino L. Mendoza at the latter's CentralBank office to follow up the signing of the corresponding contract. A performancebond in the total amount of P962,250.00 (P275,000.00 of which was in cash andP687,250.00 in the form of a surety bond) was subsequently posted by the plaintiff incompliance 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, plaintiffcommenced actual construction work on the project about the middle of January,1966. On February 8, 1966, by means of a formal letter, defendant requested theplaintiff to submit a schedule of deliveries of materials which, according to plaintiff'saccepted proposal, shall be furnished by the defendant. In compliance therewith, onFebruary 16, 1966, plaintiff submitted to the defendant the schedule of deliveriesrequested 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 office in the Central Bank. During those meetings, they discussed theprogress of the construction work being then undertaken by the plaintiff of theprojects of the defendant in San Fernando, La Union, including the progress of theexcavation work.

Sometime during the early part of March, 1966, Mr. Rizalino L. Mendoza was at theconstruction site of the said project. While he was there, he admitted having seenpile of soil in the premises. At that time, the excavation work being undertaken by theplaintiff was about 20% complete. On March 22, 1966, defendant again wrote the


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plaintiff, requesting the latter to submit the name of its representative authorized tosign the building contract with the defendant. In compliance with the said request,plaintiff submitted to the defendant the name of its duly authorized representative bymeans 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 SecretaryEduardo Romualdez, announced, among other things, the reduction of theappropriations for the construction of the defendant's various proposed regionaloffices, including that of the proposed San Fernando, La Union regional officebuilding, the construction of which had already been started by the plaintiff. He alsostated that the Central Bank Associated Architects would be asked to prepare newplans and designs based on such reduced appropriations. The defendant, during thatsame meeting, also advised the plaintiff, thru Messrs. Nicomedes G. Ablaza and

Alfredo G. Ablaza (who represented the plaintiff corporation at the said meeting), tostop its construction work on the Central Bank Regional office building in SanFernando, La Union. This was immediately complied with by the plaintiff, although itsvarious construction equipment remained in the jobsite. The defendant likewisepresented certain offer and proposals to the plaintiff, among which were: (a) theimmediate return of plaintiff's cash bidder's bond of P275,000.00; (b) the payment ofinterest on said bidder's bond at 12% per annum; (c) the reimbursement to theplaintiff of the value of all the work accomplished at the site; (d) the entering into anegotiated contract with the plaintiff on the basis of the reduced appropriation for theproject in question; and (e) the reimbursement of the premium on plaintiff'sperformance 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 theformal execution of the corresponding contract, without prejudice to its claim fordamages. The defendant, thru its Deputy Governor, Mr. Amado R. Brinas, on June15, 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 themeeting held on May 20, 1966. On the following day, however, in its letter datedJune 16, 1966, the plaintiff, thru counsel, vehemently denied that said partiesconcluded any agreement during the meeting in question.

On July 5, 1966, defendant again offered to return plaintiff's cash bidder's bond in theamount of P275,000.00. The plaintiff, thru counsel, on July 6, 1966, agreed to acceptthe return of the said cash bond, without prejudice, however, to its claims ascontained 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 theplaintiff.

On January 30, 1967, in accordance with the letter of the plaintiff, thru counsel, datedJanuary 26, 1967, the construction equipment of the plaintiff were pulled out from theconstruction site, for which the plaintiff incurred hauling expenses.

The negotiations of the parties for the settlement of plaintiff's claims out of courtproved to be futile; hence, the present action was instituted by plaintiff against thedefendant." (Pp. 249-256, Rec. on Appeal).


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It may be added that the Instructions to Bidders on the basis of which the bid and award in questionwere submitted and made contained, among others, the following provisions: t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by theOwner 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 rightsand obligations provided for in the Contract shall become effective and binding uponthe parties only with its formal execution.

xxx xxx xxx

IB 114.1 The bidder whose proposal is accepted will be required to appear at theOffice of the Owner in person, or, if a firm or corporation, a duly authorizedrepresentative shall so appear, and to execute that contract within five (5) days afternotice that the contract has been awarded to him. Failure or neglect to do so shallconstitute 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 fromthe date he receives a copy of the fully executed Contract, and he shall complete thework within the time specified." (Pp. 18-19 & 58-59, Petitioner-Appellant's Brief.)

In the light of these facts, petitioner has made the following assignment of errors: t.hqw

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS APERFECTED CONTRACT BETWEEN PETITIONER CENTRAL BANK OF THEPHILIPPINES AND RESPONDENT ABLAZA CONSTRUCTION & FINANCECORPORATION 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 HASCOMMITTED A BREACH OF CONTRACT.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HADGIVEN ITS APPROVAL TO THE WORK DONE BY RESPONDENT ABLAZACONSTRUCTION & FINANCE CORPORATION.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE AWARD OFACTUAL AND COMPENSATORY DAMAGES, ATTORNEY'S FEES ANDRETAINING FEE IS FAIR AND REASONABLE, AND IN HOLDING THATPETITIONER IS LIABLE FOR COSTS." (Pp. A & B, Petitioner-Appellant's Brief.)

Under the first assigned error, petitioner denotes the major part of its effort to the discussion of itsproposition that there could be no perfected contract in this case, (contrary to the conclusion of thecourts below) because there is no showing of compliance, and in fact, there has been no compliancewith the requirement that there must be a certification of the availability of funds by the AuditorGeneral pursuant to Section 607 of the Revised Administrative Code which provides thus: t.hqw


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Section 607. Certificate showing appropriation to meet contract. Except in thecase of a contract for personal service or for supplies to be carried in stock, nocontract involving an expenditure by the National Government of three thousandpesos or more shall be entered into or authorized until the Auditor General shall havecertified to the officer entering into such obligation that funds have been dulyappropriated for such purpose and that the amount necessary to cover the proposed

contract is available for expenditure on account thereof. When application is made tothe Auditor General for the certificate herein required, a copy of the proposedcontract or agreement shall be submitted to him accompanied by a statement inwriting from the officer making the application showing all obligations not yetpresented for audit which have been incurred against the appropriation to which thecontract in question would be chargeable; and such certificate, when signed by the

Auditor, shall be attached to and become a part of the proposed contract, and thesum so certified shall not thereafter be available for expenditure for any otherpurposes 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 contractinvolving the expenditure by any province, municipality, chartered city, or municipaldistrict of two thousand pesos or more shall be entered into or authorized until thetreasurer of the political division concerned shall have certified to the officer enteringinto such contract that funds have been duly appropriated for such purpose and thatthe amount necessary to cover the proposed contract is available for expenditure onaccount thereof. Such certificate, when signed by the said treasurer, shall beattached to and become part of the proposed contract and the sum so certified shallnot thereafter be available for expenditure for any other purpose until the contract inquestion is lawfully abrogated or discharged.

For the purpose of making the certificate hereinabove required ninety per centum ofthe estimated revenues and receipts which should accrue during the current fiscalyear but which are yet uncollected, shall be deemed to be in the treasury of theparticular 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 thesame code to the effect that "a purported contract entered into contrary to the requirements of thenext preceding section hereof shall be wholly void", "no contract between the petitioner andrespondent Ablaza Construction and Finance Corporation for the general construction of theproposed regional office building of the Central Bank in San Fernando, La Union, was ever perfectedbecause only the first stage, 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.Wrightthus: t.hqw

The aforesaid requirements of the Revised Administrative Code for the perfection ofgovernment contracts have been upheld by this Honorable Court in the case of TanC. Tee Co. vs. Wright, 53 Phil. 172, in which case it was held that the award of thecontract to the lowest bidder does not amount to entering into the contract becauseof the requirement of Section 607 of the Revised Administrative Code that a copy ofthe proposed contract shall be submitted to the Auditor General together with arequest for the availability of funds to cover the proposed contract. Thus, thisHonorable Court held: t.hqw


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'To award the contract to the lowest responsible bidder is not theequivalent of entering into the contract. Section 607 of the

Administrative Code requires that a copy of the proposed contractshall be submitted along with the request for the certificate ofavailability of funds, but there could be no proposed contract to besubmitted until after the award was made.'

And to guide government authorities in the letting of government contracts, thisHonorable Court, in said case of Tan C. Tee vs. Wright, supra, laid down theprocedure which should be followed, as follows: t.hqw

`PROCEDURE WHICH SHOULD BE FOLLOWED IN THE LETTINGOF CONTRACTS FOR INSULAR WORKS. The procedure whichshould be followed in the letting of contracts for Insular works is thefollowing: First, there is an award of the contract by the Director ofPublic Works to the lowest responsible bidder. Second, there is acertificate of availability of funds to be obtained from the Insular

Auditor, and in some cases from the Insular Treasurer, to cover theproposed contract. And third, there is a contract to be executed onbehalf of the Government by the Director of Public Works with theapproval of the department head.'" (Pp. 27-28, Petitioner-Appellant'sBrief.)

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. Noteven in its memorandum submitted to that court in lieu of oral argument is there any discussionthereof, even as it appears that emphasis was given therein to various portions of the RevisedManual of Instructions to Treasurers regarding the perfection and constitution of public contracts. Infact, 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 offices, ... including the ... Central Bank ... shall be submitted to theAuditor 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 samehaving 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 theanswer may not be raised for the first time on appeal, petitioner's position cannot be sustained.Indeed, in the Court of Appeals, petitioner could only bring up such questions as are related to theissues 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 appellatecourt cannot consider any error of the lower court "unless stated in the assignment of errors andproperly argued in the brief."

Even prescinding from this consideration of belatedness, however, it is Our considered view thatcontracts entered into by petitioner Central Bank are not within the contemplation of Sections 607and 608 cited by it. Immediately to be noted, Section 607 specifically refers to "expenditure(s) of theNational Government" and that the term "National Government" may not be deemed to include theCentral Bank. Under the Administrative Code itself, the term "National Government" refers only tothe central government, consisting of the legislative, executive and judicial departments of the


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government, as distinguished from local governments and other governmental entities and is notsynonymous, 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 centralgovernment but also the provincial and municipal governments, chartered cities and othergovernment-controlled corporations or agencies, like the Central Bank. (I, Martin, AdministrativeCode, p. 15.)

To be sure the Central Bank is a government instrumentality. But it was created as an autonomousbody corporate to be governed by the provisions of its charter, Republic Act 265, "to administer themonetary and banking system of the Republic." (Sec. 1) As such, it is authorized "to adopt, alter anduse a corporate seal which shall be judicially noticed; to make contracts; to lease or own real andpersonal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwiseto do and perform any and all things that may be necessary or proper to carry out the purposes ofthis Act. The Central Bank may acquire and hold such assets and incur such liabilities as resultdirectly from operations authorized by the provisions of this Act, or as are essential to the properconduct of such operations." (Sec. 4) It has capital of its own and operates under a budget preparedby its own Monetary Board and otherwise appropriates money for its operations and otherexpenditures independently of the national budget. It does not depend on the National Governmentfor the financing of its operations; it is the National Government that occasionally resorts to it forneeded budgetary accommodations. Under Section 14 of the Bank's charter, the Monetary Boardmay authorize such expenditures by the Central Bank as are in the interest of the effectiveadministration and operation of the Bank." Its prerogative to incur such liabilities and expenditures isnot 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 Section1901 and related provisions of the Revised Administrative Code which require national governmentconstructions 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 AdministrativeCode invoked by the Bank do not apply to it. To Our knowledge, in no other instance has the Bankever 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 theAdministrative Code to contracts made by the City of Manila. In the second paragraph of saidsection 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 thetreasurer of the political division concerned shall have certified to the officer entering into suchcontract that funds have been duly appropriated for such purpose and that the amount necessary tocover the proposed contract is available for expenditure on account thereof. It is admitted that nosuch certificate was made by the treasurer of Manila at the time the contract now in question wasmade. We are of the opinion that the provision cited has no application to contracts of a charteredcity, such as the City of Manila. Upon examining said provision (sec. 607) it will be found that theterm chartered city, or other similar expression, such as would include the City of Manila, is notused; and it is quite manifest from the careful use of terms in said section that chartered cities wereintended to be excluded. In this connection the definitions of "province," "municipality," and"chartered city," given in section 2 of the Administrative Code are instructive. The circumstance thatfor certain purposes the City of Manila has the status both of a province and a municipality (as is truein 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 thefirst paragraph of the section by confirming its application only to the offices comprised within theterm National Government as above defined, particularly insofar as government-owned or created


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corporations or entities having powers to make expenditures and to incur liabilities by virtue of theirown corporate authority independently of the national or local legislative bodies, as in the case of thepetitioner herein, are concerned. Whenever necessary, the Monetary Board, like any other corporateboard, makes all required appropriations directly from the funds of the Bank and does not need anyofficial 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 AdministrativeOrder No. 290, s. 1959, which petitioner tried to invoke, overlooking perhaps such repeal. In otherwords, by that repeal, the requirement that the Central Bank should submit to the Auditor General forexamination and review before contracts involving P10,000 or more to be entered into by it "beforethe same are perfected and/or consummated" had already been eliminated at the time thetransaction herein involved took place. Consequently, the point of invalidity pressed, belatedly atthat, by petitioner has no leg to stand on.

The other main contention of petitioner is that the purported or alleged contract being relied upon byrespondent never reached the stage of perfection which would make it binding upon the parties andentitle either of them to sue for specific performance in case of breach thereof. In this connection,since the transaction herein involved arose from the award of a construction contract 2by agovernment 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 thework without any objection on the part of the corporation, so much so that entry into the site for thepurpose was upon express permission from it, but before any written contract has been executed, it ispreferable that certain pertinent points be clarified for the proper resolution of the issue between theparties 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 opinionof the Instruction to Bidders: t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by theOwner 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 rightsand obligations provided for in the Contract shall become effective and binding uponthe parties only with its formal execution.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days fromthe date he receives a copy of the fully executed Contract, and he shall complete thework within the time specified." (Pp. 18-19, Petitioner-Appellant's Brief.)

Petitioner insists that under these provisions, the rights and obligations of the Bank and Ablaza couldbecome effective and binding only upon the execution of the formal contract, and since admittedlyno formal contract has yet been signed by the parties herein, there is yet no perfected contract tospeak of and respondent has, therefore, no cause of action against the Bank. And in refutation ofrespondent's argument that it had already started the work with some clearing job and foundationexcavations, which has never been stopped by petitioner who had previously given expresspermission 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," andfor said respondent to have started actual construction work before any contract has been signed


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was unauthorized and was consequently undertaken at his own risk, all the above circumstancesindicative of estoppel notwithstanding.

We are not persuaded that petitioner's posture conforms with law and equity. According toParagraph IB 114.1 of the Instructions to Bidders, Ablaza was "required to appear in the office of theOwner (the Bank) in person, or, if a firm or corporation, a duly authorized representative (thereof),

and to execute the contract within five (5) days after notice that the contract has been awarded tohim. Failure or neglect to do so shall constitute a breach of agreement effected by the acceptance ofthe Proposal." There can be no other meaning of this provision than that the Bank's acceptance ofthe bid of respondent Ablaza effected an actionable agreement between them. We cannot read it inthe unilateral sense suggested by petitioner that it bound only the contractor, without anycorresponding responsibility or obligation at all on the part of the Bank. An agreement presupposesa meeting of minds and when that point is reached in the negotiations between two parties intendingto enter into a contract, the purported contract is deemed perfected and none of them may thereafterdisengage 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 bypetitioner have to be reconciled with the other paragraphs thereof to avoid lack of mutuality in therelation 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 forliquidated damages as herein provided." And yet, even if the contractor is ready and willing toexecute the formal contract within the five (5) day period given to him, petitioner now claims thatunder the invoked provision, it could refuse to execute such contract and still be absolutely free fromany liability to the contractor who, in the meantime, has to make necessary arrangements and incurexpenditures in order to be able to commence work "within ten (10) days from the date he receives acopy of the fully executed Contract," or be responsible for damages for delay. The unfairness of sucha view is too evident to be justified by the invocation of the principle that every party to a contractwho is sui jurisand who has entered into it voluntarily and with full knowledge of its unfavorableprovisions may not subsequently complain about them when they are being enforced, if onlybecause 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 notunder the guise of protecting the public interest unceremoniously disregard contractual commitmentsto the prejudice of the other party. Otherwise, the door would be wide open to abuses and anomaliesmore detrimental to public interest. If there could be instances wherein a government corporationmay justifiably 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 beconsidered as determinative of the perfection of the contract here in question. Said provision onlymeans that as regards the violation of any particular term or condition to be contained in the formalcontract, the corresponding action therefor cannot arise until after the writing has been fullyexecuted. Thus, after the Proposal of respondent was accepted by the Bank thru its telegram andletter both dated December 10, 1965 and respondent in turn accepted the award by its letter ofDecember 15, 1965, both parties became bound to proceed with the subsequent steps needed toformalize and consummate their agreement. Failure on the part of either of them to do so, entitiesthe other to compensation for the resulting damages. To such effect was the ruling of this Court inValencia vs. RFC 103 Phil. 444. We held therein that the award of a contract to a bidder constitutesan acceptance of said bidder's proposal and that "the effect of said acceptance was to perfect acontract, upon notice of the award to (the bidder)". (at p. 450) We further held therein that thebidder's "failure to (sign the corresponding contract) do not relieve him of the obligation arising fromthe unqualified acceptance of his offer. Much less did it affect the existence of a contract betweenhim and respondent". (at p. 452)


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It is neither just nor equitable that Valencia should be construed to have sanctioned a one-sidedview of the perfection of contracts in the sense that the acceptance of a bid by a duly authorizedofficial of a government-owned corporation, financially and otherwise autonomous both from theNational Government and the Bureau of Public Works, insofar as its construction contracts areconcerned, binds only the bidder and not the corporation until the formal execution of thecorresponding written contract.

Such unfairness and inequity would even be more evident in the case at bar, if We were to upholdpetitioner'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 actualdamages 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 account.

There is evidence on record showing that plaintiff incurred the sum of P48,770.30 for the preparationof the jobsite, construction of bodegas, fences field offices, 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 theremoval thereof from the jobsite would amount to P78,540.00 (Exhs. "K" - "K-l"); that the interest onthe cash bond of P275,000.00 from November 3, 1965 to July 7, 1966 at 12% per annum would beP22,000.00; that for removing said construction equipment from the jobsite to Manila, plaintiff paid ahauling fee of P700.00 (Exhs. "L" - "L-1" ); that for the performance bond that the plaintiff posted asrequired under its contract with the defendant, the former was obliged to pay a premium ofP2,216.55; and that the plaintiff was likewise made to incur the sum of P32,406.50, representing the3% contractor's tax (Exhs. "AA" - "A-l"). The itemized list of all these expenditures, totallingP298,433.35 is attached to the records of this case (Annex "B", Complaint) and forms part of theevidence of the plaintiff. Mr. Nicomedes G. Ablaza, the witness for the plaintiff, properly identifiedsaid document and affirmed the contents thereof when he testified during the hearing. The samewitness likewise explained in detail the various figures contained therein, and identified thecorresponding supporting papers.

It is noteworthy, in this connection, that there is nothing in the records that would show that thedefendant assailed the accuracy and/or reasonableness of the figures 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 P154,075.00according to the report of Mr. Ambrosio R. Flores, or P147,500.00, according to the report of Mr.Ricardo Y. Mayuga, the Court finds said estimates to be inaccurate. To cite only an instance, inestimating, the value of the excavation work, the defendant merely measured the depth, length andwidth of the excavated, area which was submerged in water, without ascertaining the volume of rockand the volume of earth actually excavated as was done by the plaintiff who prepared a detailed planshowing the profile 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 unitprice used by the defendant was only P8.75 for rock excavation while it should be P10.00 per cubicyard; and only P4.95 for earth excavation while it should be P5.50 per cubic yard as clearly indicatedin plaintiff's proposal (Annex "A", Complaint; same as Annex "1", Answer). The Court, therefore, cannot give credence to defendant's, aforementioned estimates in view of their evident inaccuracies.

The Court finds from the evidence adduced that Plaintiff claim for actual damages in the sum ofP298,433.35 is meritorious.


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The Bulk of plaintiffs claims consists of expected profit which it failed to realize due to the breach ofthe contract in question by the defendant. As previously stated, the plaintiff seeks to recover theamount of P814,190.00 by way of unrealized expected profit. This figure represents 18% ofP4,523,275.00 which is the estimated direct cost of the subject project.

As it has been established by the evidence that the defendant in fact was guilty of breach of contract

and, therefore, liable for damages (Art. 1170, New Civil Code), the Court finds that the plaintiff isentitled to recover from the defendant unrealized expected profit as part of the actual orcompensatory damages. Indemnification for damages shall comprehend not only the value of theloss suffered, but also that of the profits which the obligee failed to obtain (Art. 2200, New CivilCode).

Where a party is guilty of breach of contract, the other party is entitled to recover the profit which thelatter would have been able to make had 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 profit, a number of questions will have to be answered: Is the 18%unrealized expected profit being claimed by the plaintiff reasonable? Would the plaintiff be entitled tothe whole amount of said expected profit although there was only partial performance of thecontract? Would the 18% expected profit be based on the estimated direct cost of the subject in theamount of P4,523,275.00, or on plaintiff's bid proposal of P3,749,000.00?

On the question of reasonableness of the 18% expected profit, the Court noted that according todefendant's own expert witness, Mr. Ambrosio R. Flores, 25% contractor's profit for a project similarin magnitude as the one involved in the present case would be ample and reasonable. Plaintiff'switness, Mr. Nicomedes G. Ablaza, an experienced civil engineer who has been actively engaged inthe construction business, testified that 15% to 20% contractor's profit would be in accordance withthe standard engineering practice. Considering the type of the project involved in this case, hestated, the contractor's profit was placed at 18%. Taking into consideration the fact that this

percentage of profit is even lower than what defendant's witness considered to be ample andreasonable, the Court believes that the reasonable percentage should be 18% inasmuch as theactual work was not done completely and the plaintiff has not invested the whole amount of moneycalled for by the project." (Pp. 263-268, Record on Appeal.)

These findings have not been shown to Us to be erroneous. And additional and clarificatory details,which We find to be adequately supported by the record, are stated in Respondents' brief thus: t.hqw

23. In a letter dated January 4, 1966, petitioner Central Bank, through the same Mr.Mendoza, to this request of respondent Ablaza. (Annex "D-1" to the PartialStipulation of Facts, R.A., p. 146).

24. Acting upon this written permission, respondent Ablaza immediately brought itsmen and equipment from Manila to the construction site in San Fernando, La Union,and promptly commenced construction work thereat. This work, consisted of thesetting up of an enclosure around the site, the building of temporary shelter for itsworkmen, and the making of the necessary excavation works. (Commissioner'sReport, R.A., p. 181).


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25. Following the commencement of such construction work, petitioner Central Bank,through a letter dated February 8, 1966, formally requested respondent Ablaza tosubmit to petitionerthe following:t.hqw

(a) A schedule of deliveries of material which, under the terms ofrespondent 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 monthsprior to petitioner's repudiation of the contract in question the latter(petitioner) already took the above positive steps it compliance withits 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 severaloccasions, actually discussed the progress of the work with Mr. Mendoza. Inaddition, in March 1966, the latter (Mr. Mendoza) personally visited the constructionsite. There he saw the work which respondent had by that time already accomplishedwhich consisted of the completion of approximately 20% of the necessary excavationworks. (Commissioner's Report, R.A., p. 182; Decision, id., p. 252).

28. Following Mr. Mendoza's visit at the construction site, or more specifically onMarch 22, 1966, the latter (Mendoza) wrote to respondent Ablaza, instructing thelatter to formally designate the person to represent the corporation at the signing ofthe 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 theabove request. (Exh. "I"; also t.s.n., pp 121-123, December 18, 1967).

30. Subsequently, respondent Ablaza posted the required performance guarantybond in the total amount of P962,250.00, consisting of (a) a cash bond in the amountof 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 thespecific purpose of this bond was to guarantee "the faithful Performance of theContract" 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 withrepresentatives of respondent Ablaza and another contractor. This meeting was heldat the Conference Room of the Central Bank Building. At this meeting, then FinanceSecretary Eduardo Romualdez, who acted as the representative of petitioner,announced that the Monetary Board had decided to reduce the appropriations for thevarious proposed Central Bank regional office buildings, including the one for SanFernando, La Union.


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32. In view of this decision, Secretary Romualdez informed respondent Ablaza thatnew plans and designs for the proposed regional office building in San Fernandowould have to be drawn up to take account of the reduction in appropriation.Secretary Romualdez then advised respondent to suspendwork at the constructionsite in San Fernando in the meanwhile. (Decision, R.A., pp. 253-254).

33. After making the above announcements, Secretary Romualdez proposed that allexisting contracts previously entered into between petitioner Central Bank and theseveral winning contractors (among them being respondent Ablaza) be consideredset aside.

34. Obviously to induce acceptance of the above proposal, Secretary Romualdezoffered the following concessions to respondent Ablaza: t.hqw

(a) That its cash bond in the amount of P275,000.00 be releasedimmediately, and that interest be paid thereon at the rate of 12% perannum.

(b) That respondent Ablaza be reimbursed for expenses incurred forthe premiums on the performance bond which it posted, and whichpetitioner had already accepted. (Decision, R.A., pp. 253-254).

35. In addition, Secretary Romualdez also proposed the conclusion of a new contractwith respondent Ablaza for the construction of a more modest regional office buildingat San Fernando, La Union, on anegotiatedbasis. However, the sincerity andfeasibility of this proposal was rendered dubious by a caveat attached to it, asfollows: t.hqw

'4. Where auditing regulations would permit, the Central Bank wouldenter into a negotiated contract with the said corporation (Ablaza) forthe construction work on the building on the basis of the revisedestimates.' (Annex "8" to Answer, R.A., p. 95).

36. The revised cost fixed for this proposed alternative regional office building wasfixed at a maximum of P3,000,000.00 (compared to P3,749,000.00 under thecontract 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 petitionerdemanding the formal execution of the contract previously awarded to it, or in thealternative, to pay "all damages and expenses suffered by (it) in the total amount ofP1,181,950.00 ... "(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 DeputyGovernor Amado R. Brinas, replied to respondent Ablaza's demand denying anyliability on the basis of the following claim:t.hqw

`(That, allegedly) in line with the agreement ... reached between theCentral Bank and Ablaza Construction and Finance Corporation at ameeting held ... on May 20, 1966,' "whatever agreements might havebeen previously agreed upon between (petitioner and respondent)


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would be considered set aside." (Decision, R.A., p. 255; Annex "8" toAnswer, id., pp. 93-96.)

39. The above claim was, however, promptly and peremptorily denied by respondentAblaza, 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 sufficiently denied in petitioner's reply brief.

Considering all these facts, it is quite obvious that the Bank's insistence now regarding the need forthe execution of the formal contract comes a little too late to be believable. Evenassuming arguendothat the Revised Manual of Instructions to Treasurers were applicable to theCentral Bank, which is doubtful, considering that under the provisions of its charter already referredto earlier, disbursements and expenditures of the Bank are supposed to be governed by rules andregulations promulgated by the Monetary Board, in this particular case, the attitude and actuationsthen of the Bank in relation to the work being done by Ablaza prior to May 20, 1966 clearly indicatethat 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 inquestion, 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 five (5) daysfrom notice of the award, and so, he called on the Bank at various times for that purpose. The Banknever 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 thebid were to be furnished by the Bank. On March 22, 1966, Ablaza received a letter from the Bankinquiring 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 theCentral 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 requestabovementioned of the 22nd of that month for the nomination of the representative to sign the formalcontract, and actually saw the progress of the work and that it was being continued, but he neverprotested or had it stopped. All these despite the fact that the Memorandum Circular being invokedby the Bank was issued way back on December 31, 1965 yet. And when finally on May 20, 1966 theBank met with the representatives of Ablaza regarding the idea of changing the plans to moreeconomical ones, there was no mention of the non-execution of the contract as entitling the Bank toback out of it unconditionally. Rather, the talk, according to the findings of the lower courts, wasabout the possibility of setting aside whatever agreement there was already. Under thesecircumstances, it appears that respondent has been made to believe up to the time the Bankdecided definitely not to honor any agreement at all that its execution was not indispensable to acontract to be considered as already operating and respondent could therefore proceed with thework, while the contract could be formalized later.

Petitioner contends next that its withdrawal from the contract is justified by the policy of economicrestraint ordained by Memorandum Circular No. 1. We do not see it that way. Inasmuch as thecontract here in question was perfected before the issuance of said Memorandum Circular, it iselementary that the same may not be enforced in such a manner as to result in the impairment of theobligations of the contract, for that is not constitutionally permissible. Not even by means of astatute, which is much more weighty than a mere declaration of policy, may the government issueany regulation relieving itself or any person from the binding effects of a contract. (Section 1 (10),


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Article III, Philippine Constitution of 1953 and Section 11, Article IV, 1973 Constitution of thePhilippines.) Specially in the case of the Central Bank, perhaps, it might not have been reallyimperative that it should have revised its plans, considering that it has its own resourcesindependent of those of the national government and that the funds of the Central Bank are derivedfrom its own operations, not from taxes. In any event, if the memorandum circular had to beimplemented, 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 unjustifiably failingto 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 bythe trial court and found by the Court of Appeals to be "fair and reasonable." Again, after a review ofthe record, We do not find sufficient 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) compensationfor actual work do

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