Caroline T. Castro v. Commission On Audit

Summary

This case involves a dispute over contract interpretation in a government procurement contract. Himamaylan City entered into a P70.1 million contract with Dynamic Builders for public market construction, containing a 2% rebate clause for early payment. When the city opted for lump sum payment during construction, COA issued a Notice of Disallowance for failing to deduct the 2% rebate. The Supreme Court applied Civil Code Article 1370 and contract interpretation principles, ruling that the phrase 'without prejudice to the two percent rebate' in the lump sum payment option clearly preserved the rebate entitlement. However, the Court found that City Treasurer Caroline Castro acted in good faith due to the ambiguous contract language, lack of precedent, and conflicting agency interpretations. The decision affirmed the disallowance but excused Castro from personal liability, establishing important precedent on good faith in government contract interpretation and the prospective application of clarified contractual ambiguities.