G.R. No. L-33022. April 22, 1975.
CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and ABLAZA CONSTRUCTION & FINANCE CORPORATION, respondents.

FACTS

In 1965, the Central Bank invited bids for the construction of its regional office in San Fernando, La Union. Respondent Ablaza Construction & Finance Corporation submitted a bid, supported by a cash bond. On December 7, 1965, the Monetary Board approved the award of the contract to Ablaza for P3,749,000. This award was formally communicated to Ablaza on December 10, 1965, which Ablaza accepted on December 15, 1965. Pursuant to the award and subsequent permission granted by the Bank, Ablaza commenced construction work in January 1966, posted the required performance bond, and complied with various Bank requests, including submitting a schedule of material deliveries and the name of its authorized contract signatory.
However, on May 20, 1966, during a meeting called by the Bank, Finance Secretary Eduardo Romualdez announced a policy of fiscal restraint following a change in presidential administration. He declared a reduction in appropriations for the project, instructed the preparation of new plans based on a lower budget, and directed Ablaza to stop all construction work. Ablaza complied but the Bank refused to proceed with the original contract, insisting on revised plans and a lower contract price. Ablaza filed an action for damages due to breach of contract.

ISSUE

Whether the Central Bank is liable for breach of contract and for damages after formally awarding the construction project to Ablaza and allowing the commencement of work, notwithstanding the subsequent invocation of a government policy on fiscal restraint.

RULING

Yes, the Central Bank is liable. The Supreme Court affirmed the decisions of the lower courts holding the Bank liable for damages. The legal logic is anchored on the principle that a perfected contract existed upon the acceptance of the award by the bidder. The Bank’s formal award, communicated via telegram and letter, followed by Ablaza’s unequivocal acceptance, created a binding contract. The subsequent commencement of work, posting of bonds, and the Bank’s own directives (like requesting delivery schedules) constituted mutual execution and partial performance, rendering the absence of a formal written document immaterial.
The Bank’s defense, based on a new presidential policy of fiscal restraint, was unavailing. The Court ruled that such a general policy directive cannot unilaterally abrogate an already perfected and partially executed contract. The government, when entering into contracts through its agencies, is bound by the same contractual obligations as private parties. The Bank’s refusal to honor the contract, demanding a price reduction and plan revisions, constituted a clear breach. Consequently, Ablaza was entitled to compensatory damages for actual losses and unrealized profits (lucrum cessans), which were reasonably estimated based on the contract’s unfulfilled term. The award for attorney’s fees was upheld but reduced to ten percent of the total recovery.