Ferrochrome Philippines, Inc. v. Cagayan Electric Power and Light Co., Inc.

FIRST DIVISION

[G.R. No. 194871. August 14, 2019.]

FERROCHROME PHILIPPINES, INC., petitioner, vs.CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC., respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated August 14, 2019which reads as follows:

"G.R. No. 194871 (Ferrochrome Philippines, Inc. v. Cagayan Electric Power and Light Company, Inc.). — In this petition, We uphold the right of respondent Cagayan Electric Power and Light Company, Inc. (CEPALCO) to supply electricity to consumers within its franchise area pursuant to established public policy, and decide the issue of damages on equitable considerations, bearing in mind the parties' individual conduct that contributed to the dispute.

Petitioner Ferrochrome Philippines, Inc. (FPI) is a domestic corporation engaged in the business of manufacturing, selling and exporting ferrochrome using mostly local raw materials. 1 It is registered with the Board of Investments (BOI) on a Preferred Pioneer Status under Republic Act No. (RA) 6135, entitled the "Export Incentives Act of 1970." 2 FPI's manufacturing facilities are located at PHIVIDEC Industrial Estate, Tagoloan, Misamis Oriental. 3

On August 20, 1980, FPI entered into an agreement for the direct sale and supply of its plant operations power requirements (agreement) with the National Power Corporation (NPC), a government-owned and controlled corporation authorized under its Charter, RA 6395, 4 to generate and transmit electric energy and set up transmission line grids and generation facilities in Luzon, Visayas and Mindanao. 5

The agreement prompted CEPALCO, a private corporation organized under RA 3247, 6 to institute a petition for prohibition, mandamus and injunction with prayer for a restraining order and/or preliminary injunction against NPC. The case was filed in the Regional Trial Court of Quezon City (RTC-Quezon City) and docketed as Civil Case No. Q-35945 (CEPALCO v. NPC). 7 According to CEPALCO, the agreement violated its rights under its franchise which grants it authority to construct, maintain, and operate electric and power systems within the municipalities of Tagoloan, Opol, Villanueva and Jasaan, Province of Misamis Oriental, and in Cagayan de Oro City and its suburbs. The agreement also allegedly violated the national electrification policy under existing laws. 8

On May 2, 1984, RTC-Quezon City rendered judgment 9 in favor of CEPALCO, the dispositive portion of which states: CAIHTE

WHEREFORE, for all the foregoing considerations, judgment is hereby rendered as prayed for by the petitioner, and the Court hereby orders the respondent to permanently desist from effecting, causing, and continuing the direct supply, sale and delivery of electricity from its power line to the plant of Ferrochrome Philippines, Inc. and from entering into and/or implementing any agreement or arrangement for such direct power connection unless coursed through the power line of the petitioner. Accordingly, the Court declares that any and all acts, arrangements and/or contracts entered into by respondent for direct power connection, and the direct sale, supply and delivery of electric power by respondent to Ferrochrome without coursing the same through petitioner, are violative of the rights of the petitioner under its legislative franchise, and are therefore illegal, null and void. If in the meantime the respondent has already caused or made a direct connection of its power line to Ferrochrome Phil., Inc., the respondent is ordered to immediately relinquish to petitioner all its facilities intended for such power connection without causing any undue interruption of Ferrochrome's operations, upon proper reimbursement by petitioner of the actual cost thereof, and petitioner is likewise ordered to immediately assume the obligation to supply power to Ferrochrome after the appropriate contract is executed for the purpose.

Finally, the respondent is ordered to pay the petitioner all sums which it has already collected representing the difference between respondent's sale of power at non-utility rates and the amounts computed at utility rates covering all the months from the time Ferrochrome started to draw electricity directly from respondent on August 17, 1982, together with all the sums withdrawn by respondent from the Bank of America, in accordance with the respondent's own voluntary commitment in the "joint supplemental manifestation and motion" of the parties dated September 26, 1983. 10

NPC assailed the judgment before Us through G.R. No. 72085 (also CEPALCO v. NPC). 11 On December 28, 1989, We rendered a Decision upholding it.

In the meantime, pursuant to Cabinet Memorandum, Item No. 2 12 issued by then President Corazon C. Aquino, CEPALCO filed with the Energy Regulatory Board (ERB) on November 3, 1989 a petition entitled "In Re: Petition for Implementation of Cabinet Policy Reforms in the Power Sector." Docketed as ERB Case No. 89-430, the petition sought the discontinuation of all existing direct supply of power by the NPC within CEPALCO's franchise area. 13

On January 29, 1990, Our Decision in CEPALCO v. NPC became final and executory. 14 Accordingly, RTC-Quezon City issued a Writ of Execution dated March 21, 1990. In a letter dated April 3, 1990, NPC informed FPI of the implementation of the writ on March 25, 1990 and the transfer of FPI's direct power supply connection to CEPALCO. NPC also assured FPI that this arrangement will not cause undue interruption on FPI's operations. 15

In response, FPI sent NPC a letter dated April 20, 1990 16 stating that it is not bound by the RTC-Quezon City Decision since it was not made a party to the case even if its interest was substantial. It insisted on holding NPC responsible under the agreement, and asserted that if its power supply connection had already been transferred to CEPALCO, it will pay only the rates provided in the said agreement and nothing more. FPI also invoked its right to be heard on CEPALCO's capability to supply its power needs and its willingness to match NPC's rates, as a matter of due process, and claimed that it cannot afford to pay the 10% add-on rate sought by CEPALCO on top of NPC rates.

Despite knowledge of the transfer of its power connection to CEPALCO, and without informing the latter, FPI paid NPC the electric bill that the latter erroneously issued. 17 Consequently, CEPALCO sent a notice of disconnection to FPI for not having received payment for the April 1990 energy bill amounting to P10,175,804.47, with warning that if the amount is not settled by the stated due date it will be constrained to disconnect the energy service to FPI. 18 In reply, FPI informed CEPALCO that it already paid its April 1990 power bill to NPC in the amount of P9,344,906.24. 19 DETACa

On May 18, 1990, FPI filed a complaint for damages with writ of preliminary injunction against CEPALCO before RTC-Cagayan De Oro City. 20 FPI asserted that it was not a party in CEPALCO v. NPC, hence it is not bound by the Decision in that case. Moreover, CEPALCO's threat to disconnect NPC's power supply to FPI will cause irreparable damage to the latter's industrial plant, millions worth of losses, unemployment of hundreds of FPI's laborers and employees, and will subject it to numerous lawsuits by its customers. 21

In its answer, CEPALCO claimed that FPI is guilty of bad faith and misrepresentation because even if it were not impleaded in CEPALCO v. NPC, it had all the time and chance to intervene in the case, but it chose not to do so. Further, several pleadings were filed in that case bearing the conformity and agreement of FPI. On the other hand, the question of who can supply electric power, current and energy to FPI had already been decided with finality in G.R. No. 72085, and FPI was informed of the Decision. FPI's payment of its April 1990 energy bill directly to NPC was done in bad faith since it was already given notice that its power supplier is CEPALCO and no longer NPC. 22

On July 27, 1990, RTC-Cagayan De Oro City ordered the issuance of a writ of preliminary injunction enjoining CEPALCO from disconnecting the power supply of FPI, upon the latter's filing of a bond in the amount of P50,000.00. 23

On October 22, 1990, FPI filed an urgent motion averring that on October 20, 1990, CEPALCO illegally, unlawfully, and maliciously cut-off its power supply, causing the complete shutdown of its plant. CEPALCO's act allegedly runs afoul the writ of preliminary injunction issued by RTC-Cagayan De Oro City. 24

On November 15, 1990, FPI filed a supplemental complaint alleging, among others, that CEPALCO took over the power line servicing FPI without first complying with the condition specified in CEPALCO v. NPC, i.e., CEPALCO may immediately assume the obligation to supply power to FPI after the appropriate contract is executed for the purpose. FPI argued that the rates imposed by CEPALCO under Rate Schedule 83 which is 10% higher than NPC industrial tariff rates, is not mandatory. It cited the memorandum of agreement among CEPALCO, PHIVIDEC and Metro Alloy, whereby the latter was required to pay rates that are only 3% higher than NPC industrial rates, or 7% less than what CEPALCO insists FPI should pay. FPI maintained that it has the right to be directly connected to and serviced by NPC and that CEPALCO had neither capacity nor willingness to match NPC rates. FPI also increased its claim for actual and compensatory damages. 25

CEPALCO, on the other hand, denied all the material allegations in the supplemental complaint and by way of special and affirmative defenses argued, among others, that: (1) RTC-Cagayan de Oro lacked jurisdiction to rule on questions raised by FPI pertaining CEPALCO's rates; (2) FPI accepted, received and made use of the electric power, current and energy supplied by CEPALCO, hence it is duty bound to pay for it in accordance with CEPALCO's rates; (3) FPI's claim of non-existence of an appropriate contract is untenable because when it accepted the electric power, current and energy supplied to it by CEPALCO, it is deemed to have accepted the terms and conditions on the supply of electricity mandated by the ERB; (4) FPI committed forum shopping when it filed an application with NPC for direct power connection in direct violation of the Decision in G.R. No. 72085; and (5) CEPALCO did not deceitfully nor illegally effect the power disconnection but gave ample notice, time and opportunity for FPI to prevent it. The disconnection was a valid and legal exercise done in good faith. 26

On October 11, 1991, FPI and CEPALCO entered into an agreement wherein they stipulated, among others, that: (1) CEPALCO shall secure the power allocation requirements of FPI from NPC; (2) CEPALCO shall connect FPI to its 138 KV line by installing and maintaining the necessary transmission and related facilities from the nearest NPC power yard to FPI plant and facilities; and (3) FPI shall pay for such power supply at prevailing NPC Industrial Tariff Schedule for Mindanao power grid plus 2% franchise tax and 1% royalty of PHIVIDEC Industrial Authority. 27 aDSIHc

On July 17, 1992, the ERB rendered a Decision in ERB No. 89-430, ruling that CEPALCO has been proven capable of distributing power to its industrial customers, and that all direct connections of industries to NPC within CEPALCO's franchise area were no longer necessary. 28

On August 13, 1993, FPI filed a second supplemental complaint whereby it increased its claim for actual and compensatory damages due to pre-heating, off grade ferrochrome, lost sales, and necessary and related expenses such as payment of separation pay and cost of cleaning up the molten metals that hardened after the disconnection. FPI also increased its claim for attorney's fees. In response, CEPALCO adopted its answer to the supplemental complaint and denied the new allegations in the second supplemental complaint. 29

On February 11, 2005, RTC-Cagayan De Oro City rendered a Decision 30 in favor of FPI. It held that FPI is not a party in CEPALCO v. NPC, so that it could not be a subject of the writ of execution. CEPALCO should have respected the contract between FPI and NPC. In forcing FPI to abandon its contract with NPC, it violated Article 1314 of the Civil Code which provides that "[a]ny third person who induces another to violate his contract shall be liable for damages to the other contracting party." Moreover, CEPALCO failed to comply with the requirements of the RTC-Quezon City Decision. When it supplied power to FPI, it was yet to reimburse NPC for the cost of its facilities and execute an appropriate contract with FPI. The Decision in CEPALCO v. NPC did not contemplate an implied contract, but an executed one. RTC-Cagayan de Oro City also held that CEPALCO cannot impose Rate Schedule 83 on FPI since there is no contract between the parties. Besides, the rate schedule is discriminatory, being 10% above NPC industrial rates while CEPALCO gave only 3% add-on to another company, Metro Alloy. CEPALCO also did not object to NPC directly supplying another enterprise, Philippine Sinter Corporation. Finally, CEPALCO had no right to interrupt FPI's plant operations on August 12, 1990 and disconnect the latter's use of its 138 KV line on October 20, 1990. 31 The trial court thus awarded damages to FPI and ordered CEPALCO to restore power to the former at the NPC rates pending negotiation and perfection of an appropriate contract as contemplated in the RTC-Quezon City Decision, among others.

CEPALCO appealed the RTC-Cagayan de Oro Decision to the Court of Appeals (CA).

On August 17, 2010, the CA rendered a Decision 32 reversing and setting aside the RTC-Cagayan de Oro Decision and dismissing FPI's complaint. It held that in the case filed by CEPALCO against NPC with RTC-Quezon City, the latter declared that any contract entered into by NPC for direct power connection and direct sale, supply, and delivery of electric power by NPC to FPI without coursing it through CEPALCO are violative of the latter's rights under its legislative franchise and are therefore illegal, null and void. This Decision was already affirmed in G.R. No. 72085. 33 The RTC-Cagayan de Oro ruling that the Decision of the RTC-Quezon City cannot be enforced against FPI contradicts the final and executory judgment in CEPALCO v. NPC, aside from violating the rule on non-interference with the proceedings and final judgment of a court of co-equal jurisdiction. 34

Moreover, having failed to intervene in the case of CEPALCO v. NPC then pending before RTC-Quezon City to protect its interests, FPI is bound by the court's Decision and is now estopped from claiming that it was not impleaded in the said case. In any event, the RTC-Quezon City Decision was never meant to prejudice FPI, as it will remain to be supplied by electricity, only the supplier will be different. The CA noted that the RTC-Quezon City Decision did not touch on the rates, but held that CEPALCO's rates have always been the correct ones imposed on all electricity users within its franchise area, including FPI. Hence, the latter cannot insist that CEPALCO should also charge the lower rates offered to it by the NPC. 35

As regards the condition stated in the RTC-Quezon City Decision that CEPALCO should first reimburse the actual cost of NPC facilities, the CA noted that NPC voluntarily relinquished its facilities to CEPALCO even prior to receiving reimbursement. This in effect is recognition by NPC of CEPALCO's exclusive right to sell electric power to consumers within its franchise area. In any case, the matter of reimbursement is strictly between CEPALCO and NPC and does not concern FPI. 36 On another issue, electricity rates involve a technical determination by the ERB, as the administrative agency in possession of the specialized expertise on the matter. The doctrine of primary jurisdiction prevents the courts from determining the issue of whether CEPALCO should charge FPI lower rates, as it would constitute unjustified encroachment into the domain of the ERB's prerogatives. 37 In this case, the RTC-Cagayan de Oro's ruling on the alleged impropriety of Rate Schedule 83 not only violated this doctrine but in effect reversed the ruling of the ERB and the Decision of the High Court in Philippine Sinter Corporation v. CEPALCO, 38 which affirmed the ERB Decision granting CEPALCO's petition to implement Rate Schedule 83 within the PHIVIDEC Industrial Estate where FPI's plant is located. As regards FPI's insistence that CEPALCO's rate schedule is discriminatory as it allowed its other consumers preferential rates, CEPALCO explained that had FPI only negotiated in good faith, there could have been an agreement reached on a rate reasonable to both parties. Unfortunately, this avenue had been foreclosed by FPI's refusal to sit down with CEPALCO. 39 ETHIDa

The CA also held that there was an implied agreement between FPI and CEPALCO at the time the latter assumed the obligation to supply power to FPI, evinced by CEPALCO's voluntary acceptance of its duty to supply electricity to FPI and the latter's acceptance and use of the electricity supplied by CEPALCO. Contracts need not be always express or in writing, and they are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. In view of all of the above, the CA held that FPI's refusal to be supplied electricity by CEPALCO was a violation of the latter's property rights to supply electric power within its franchise area which the CA cannot countenance. 40

With respect to the issue of the power interruption that occurred on August 12, 1990 and disconnection of FPI's power supply on October 20, 1990, the CA ruled that FPI failed to prove fraud on the part of CEPALCO with clear and convincing evidence. Fraud cannot be presumed, but good faith must be. Also, since CEPALCO was rightfully supplying FPI's power requirements, it behooved FPI to pay it the amount which was not shown to be in excess of ERB-approved rates. CEPALCO had been supplying power to FPI since March 1990. It is difficult to understand why FPI opted to go on paying NPC, and harder to comprehend why NPC accepted the payment. CEPALCO was acting well within its rights when it disconnected the power supply of FPI since the latter refused and failed to settle its outstanding obligation. 41 In view of these considerations, FPI is not entitled to damages.

FPI filed a motion for reconsideration, but it was denied. Hence, this petition which raises several issues that may be summarized as follows:

1. Whether FPI is bound by the Decision in CEPALCO v. NPC;

2. Whether there was a contract between FPI and CEPALCO;

3. Whether CEPALCO should apply the rates provided by NPC to FPI; and

4. Whether FPI is entitled to damages.

The petition is partly meritorious.

I.

FPI argues that it is not bound by the Decision in CEPALCO v. NPC because it was not a party to the case. 42 Moreover, the duty to implead all necessary and indispensable parties lies in the plaintiff, CEPALCO, so that FPI should not be considered estopped or faulted for not intervening in the case. 43

The rule is settled that a final judgment cannot bind a party who was not impleaded and given opportunity to participate in a case. In the same manner, a writ of execution can be issued only against a party and not against one who did not have his day in court. 44 On whether FPI was an indispensable party to the case brought by CEPALCO against NPC, RTC-Quezon City judiciously ruled that CEPALCO had no cause of action against FPI and it is contrary to good business sense to sue its (former) costumer without substantial basis. 45

Nonetheless, FPI is bound by the ruling in CEPALCO v. NPC. The agreement between FPI and NPC for the direct sale and supply of electricity must be construed in the context of the public policy that the law seeks to promote in the generation and distribution sectors of the power industry.

Presidential Decree No. (PD) 269, otherwise known as the "National Electrification Administration Decree" which was in force at the time of execution of FPI and NPC's agreement, expressed the State's policy to promote, encourage and assist all public service entities engaged in supplying electric service in order to attain the objective of total electrification of the Philippines on an area coverage basis. In this view, public service entities, which are either electric cooperatives or private utilities, are granted franchises to operate an electric system for service to the public at retail within a described geographic area. 46 CEPALCO is one such private utility that was granted a franchise to "construct, maintain and operate an electric light and power system for the purpose of generating and distributing electric light and power for sale within the Municipalities of Tagoloan, Opol, Villanueva and Jasaan, all in the Province of Misamis Oriental, and in the City of Cagayan de Oro and its suburbs." cSEDTC

In Milwaukee Industries Corporation v. Pampanga III Electric Cooperative, Inc., 47 the Court has recognized that the electric power industry is highly capital-intensive, and as such operates as a natural monopoly. Specifically, distribution utilities have to spend tremendous amounts to set up distribution lines, power stations, operation centers, transformers and the like, not to mention the typical operating costs, to operate and do business. In consideration of the huge pre-operation costs, generating companies like the NPC have to grant distribution companies the exclusive right to sell electricity within the latter's area of operation. Hence, without ignoring the Constitutional proscription against exclusivity of franchises, We generally grant electric cooperatives and private utilities like CEPALCO an exclusive right to sell electric power to consumers within their authorized area of operation. In a number of cases, We qualified that exclusivity is given by law with the understanding that the franchise holder is self-sufficient and capable of supplying the needed service at moderate or reasonable prices. 48

Corollarily, it is an established state policy that NPC is statutorily empowered to directly service all the requirements of a BOI-registered enterprise only after an affected private franchise holder is afforded an opportunity to be heard on the application therefor, and from such a hearing it is established that said private franchise holder is incapable or unwilling to match the reliability and rates of NPC for directly serving the enterprise. 49 In National Power Corporation v. Cañares, 50 the Court held that there is nothing in the NPC's charter which expressly or impliedly allowed or sanctioned the sale in bulk by the NPC of energy directly to BOI-registered enterprises even if it would be violative of the rights of existing franchise holders. In not a few cases, the Court upheld the franchise rights of private utilities such as CEPALCO over their area of operation pursuant to the above-enunciated public policy. 51

The Court has also held that electricity is property but not just any property of the service provider. Electricity is a basic necessity, the generation and distribution of which is imbued with public interest. Its provider is a public utility subject to strict regulation by the State in the exercise of police power. 52

Verily, service contracts for the supply of electricity to consumers exist in the context of State regulation. The law provides that the parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to, among others, public policy. The public policy here is to give primacy to the rights of private utilities under their franchise.

The agreement between FPI and NPC contravened public policy when NPC undertook to supply FPI's energy requirements without first having ascertained through the proper procedure that CEPALCO is incapable or unwilling to match its reliability and rates. When the agreement was appropriately invalidated in CEPALCO v. NPC, FPI can no longer insist that NPC continue to supply its energy requirements. Not only does this amount to a circumvention of a final and executory judgment, it also suspends the implementation of the public policy so fluently and distinctly enunciated by law and various court decisions, and practically puts FPI above the law. Public policy is deemed written into the agreement between FPI and NPC and cannot be held hostage to either party's self-interests.

Moreover, NPC is a public utility 53 whose authority as such may not be exercised in a manner that would prejudice the rights of existing franchisees. 54 As regards CEPALCO, when private property is used for a public purpose and is affected with public interest, it ceases to be juris privati only and becomes subject to regulation to promote the common good. 55 FPI cannot ignore the corporate nature of NPC and CEPALCO and the laws that regulate them.

II.

In the RTC-Quezon City Decision in CEPALCO v. NPC that We affirmed in G.R. No. 72085, CEPALCO was "ordered to immediately assume the obligation to supply power to FPI after the appropriate contract is executed for the purpose." 56

The next question for consideration is whether there was a contract between FPI and CEPALCO that underlies the supply of energy by the latter to the former.

The CA held that there was an implied contract between the parties, manifested by the fact that CEPALCO voluntarily accepted its duty to supply electricity to FPI and FPI accepted and used the electricity supplied by CEPALCO. According to the CA, "there was already a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service." 57 SDAaTC

The Court disagrees.

In requiring that "the appropriate contract is executed" the RTC-Quezon City Decision clearly intended FPI and CEPALCO to enter into a written contract. Otherwise, the trial court could have simply ordered CEPALCO to take over the supply of electricity to FPI. The written contract serves to address whatever issues that may arise as a result of FPI not being a party to the CEPALCO v. NPC case. Requiring FPI and CEPALCO to negotiate and find suitable arrangements that will promote their individual interests would tend to prevent discord between them and promote an appreciation of the public policy that the government seeks to implement in the power sector. Requiring a written contract also serves as recognition of FPI's category as a BOI-registered enterprise and power-intensive business undertaking, and CEPALCO's flexibility in imposing rates to consumers of such kind as long as these are within the standards set by law. In other words, RTC-Quezon City plainly intended a smooth transition of services from one power supplier to another without disruption of the consumer's business activities. Without a doubt, its Decision does not contemplate an implied contract.

Likewise, it may not be held that an implied contract exists between FPI and CEPALCO. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. 58 Its essential requisites are: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and (c) cause of the obligation which is established. 59 The presence of all the elements is necessary for a valid contract. 60 When all the elements are present, the contract shall be obligatory in whatever form they may have been entered into. 61 With respect to the element of consent, Article 1319 of the Civil Code pertinently provides:

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.

There must be no ambiguity in the terms of the offer as well as its acceptance in order for the element of consent to be present. In Moreno v. Private Management Office62 We held:

To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that their minds meet as to all the terms. They must have a distinct intention common to both and without doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing can be left open for further arrangement. So long as there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all. 63

Here, FPI's opposition to CEPALCO's takeover as its supplier of electricity is a glaring indication of its lack of consent to such an arrangement. The circumstances indicate that FPI used the electricity supplied by CEPALCO not on a voluntarily, but on a take it or leave it basis. It was not so much given a choice, but forced into the new situation as its business hung on the line. As mentioned, electricity is a basic necessity. 64 If much inconvenience may be caused to a plain household by a single day's power interruption, one can imagine how much more prejudice it would cost to an enterprise whose lifeblood runs on electric power. There being no consent on the part of FPI to be connected with CEPALCO, there is no meeting of the minds to speak of here, and therefore no implied contract.

In all, it was incumbent upon the parties to forge an agreement that would define their compulsory relationship before CEPALCO should have assumed its role as power supplier. To say that an implied contract exists is to modify the clear tenor of the RTC-Quezon City Decision which requires FPI and CEPALCO to execute a written contract. acEHCD

III.

As fate would have it, no contract existed between FPI and CEPALCO at the time the latter undertook the sale and supply of electric power to the former. We hold that the parties are equally responsible for negotiating a contract for their mutual benefit pursuant to the RTC-Quezon City Decision, and that they should bear their own damage for their failure to do so.

FPI argues that CEPALCO never attempted to negotiate with it on the terms and conditions for the supply of power. 65 CEPALCO counters that it was FPI which did not want to negotiate with it and insisted that its contract with NPC be respected even if already declared null and void. 66

The obligation to initiate negotiations for the contract principally lies on CEPALCO. Not only was it a party in CEPALCO v. NPC; it filed the case precisely to assert the right to supply electricity to FPI which conducts business within its franchise area. In fact, in its comment to the petition, CEPALCO stated that it had been at the forefront of asserting its preferential rights under its legislative franchise and under existing laws of serving power intensive industries. 67

The record bears that before the writ of execution was issued, or on March 14 and 15, 1990, CEPALCO's officers went to FPI's plant in Tagoloan and informed FPI officials of the finality of the RTC-Quezon City Decision. They also presented a sample computation of its charges based on Rate Schedule 83 and a pro forma contract charging FPI a 10% increase from NPC industrial rates. 68 On March 25, 1990, pursuant to the writ of execution issued on March 21, 1990, NPC transferred the facilities that directly served FPI, including the supply of electricity, to CEPALCO. 69 Beginning March 25, 1990, CEPALCO assumed its role as supplier of electricity to FPI notwithstanding the absence of a contract.

To the mind of the Court, CEPALCO's actuations on March 14 and 15 do not amount to an intention to negotiate. It merely apprised FPI of extant circumstances and its rates without the explicit purpose of leaving FPI's premises with a signed contract in hand. Moreover, it imposed burdensome rates. In the first place, CEPALCO provided FPI with Rate Schedule 83 that was fixed by the ERB not until its June 17, 1992 Decision in ERB Case No. 89-430, or more than two years after CEPALCO began supplying power to FPI on March 25, 1990. FPI alleged that CEPALCO's rates are discriminatory, and the latter did not deny it. While CEPALCO charged FPI 10% more than NPC industrial rates, 70 it only charged Metro Alloy, another enterprise conducting business within its franchise area, only 3% more. 71 Similarly, MORESCO, an electric cooperative, required INCOME, a company engaged in the same business as FPI, to pay only 2.4% more than the NPC rates. 72 CEPALCO does not dispute these assertions.

The Court also notes that FPI and CEPALCO entered into an agreement 73 dated October 11, 1991, whereby the latter charged the former only a 2% franchise tax on top of the NPC Industrial Tariff Schedule for the Mindanao power grid. 74 This only shows that CEPALCO has sufficient flexibility in charging its large consumers with power-intensive businesses. FPI's resistance to CEPALCO's service is partly caused by rates that it perceived were inequitable. If CEPALCO had made an earlier effort to communicate its willingness to charge lower rates, then the present dispute would more likely than not have been averted.

We reiterate at this point our ruling that the exclusive privilege granted by law to private utilities to supply electricity within their franchise area is conditioned not only on their being self-sufficient and capable of supplying the needed service. They also must do so at moderate or reasonable prices. This is grounded on the rationale that it is in the public interest when industries dependent on heavy use of electricity are given reliable and direct power at lower costs, enabling the sale of nationally marketed products at prices within the reach of the masses. 75

Evidently, CEPALCO's actions are contributory to the present dispute. It should not benefit from a situation that it partially created.

Likewise, FPI cannot claim innocence in this legal tussle.

First, while it claims that it was not a party to CEPALCO v. NPC and that it is not bound by the Decision in that case, 76 FPI in fact had sufficient, if not full, knowledge of the proceeding. 77 If it felt so strongly against dealing with CEPALCO, then good faith required it to take proactive action to protect its rights and interests. However, it did not do so and chose instead the slippery slope toward a certain dispute.

After having been informed by NPC in its letter 78 dated April 3, 1990 that the writ of execution in CEPALCO v. NPC was to be implemented on March 25, 1990, FPI took a dismissive posture. In its letter-reply to NPC 79 dated April 20, 1990, it adamantly insisted that it is not bound by the RTC-Quezon City Decision since it was not a party to the case, and that it will only pay the rates agreed upon with NPC and nothing more. SDHTEC

Similarly, when CEPALCO's officers visited FPI's office on March 14 and 15, 1990 to provide the latter with a pro-forma contract and rate schedule, FPI did not exhibit good faith in negotiating for lower rates. It remained passive and showed no intention of respecting the RTC-Quezon City Decision. Even if it is a final and executory judgment prohibiting NPC from supplying electricity to FPI, the latter insisted on being serviced by NPC. FPI's bad faith is exemplified in the fact that after the Court rendered judgment in G.R. No. 72085 affirming the Decision of RTC-Quezon City, FPI still attempted to strike a new deal with NPC by filing a new application for the direct supply of electric power for its ferro-alloy plant in Tagoloan. 80 As a result, CEPALCO filed a petition for contempt against NPC officers with RTC-Quezon City, which eventually held the former guilty of indirect contempt. 81 We later affirmed this Decision in Aboitiz v. Regino, 82 where We held that the RTC-Quezon City Decision in CEPALCO v. NPC permanently enjoined NPC from providing direct power connection to FPI as it would breach CEPALCO's property rights under its legislative franchise. Moreover, the Decision intended the arrangement between FPI and CEPALCO to be permanent and free from NPC's influence or intervention. Any attempt on the part of NPC or its officers and/or employees to strike a deal with FPI would be a clear and direct disobedience to a lawful court order and therefore contemptuous.

In conclusion, the record is bereft of evidence of either party's attempt or willingness to negotiate for terms and conditions that will allow for a smooth transition of services from NPC. CEPALCO did not faithfully observe the conditions prescribed by the final and executory RTC-Quezon City Decision, while FPI exhibited bad faith in insisting on conducting business with NPC. Equitable considerations call for the Court to rule that FPI and CEPALCO should bear their own damage.

Thus, for having assumed the obligation to supply power to FPI without the required contract and to avoid unjust enrichment on the part of FPI which benefitted from the power supply, CEPALCO should be entitled only to NPC industrial rates under the agreement between FPI and NPC, from the time it began supplying power to FPI on March 25, 1990, until October 10, 1991, the day before the herein parties entered into an agreement. Any payments made by FPI to CEPALCO within that period that are in excess of NPC industrial rates shall be refunded by CEPALCO.

FPI, on the other hand, should bear the losses it sustained as a result of the August 12, 1990 power interruption and October 20, 1990 disconnection. With respect to the power interruption, the Court adopts the CA's finding that FPI failed to make out a case of fraud by clear and convincing evidence. 83 The disconnection of power, on the other hand, was justified by FPI's continued refusal to pay CEPALCO, 84 even under protest or as a sign of good faith while the parties ironed out their differences — if only as a matter of self-preservation. As discussed, despite notice of the finality of the RTC-Quezon City Decision which declared the contract between FPI and NPC void, and knowledge of CEPALCO's takeover, FPI tenaciously paid its power bills to NPC 85 and subsequently filed a new application for the direct supply of electric power from NPC. 86 Clearly, the injury suffered by FPI from the disconnection was but a result of its own decision to skate on thin ice.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated August 17, 2010 and Resolution dated December 16, 2010 of the Court of Appeals in CA-G.R. CV No. 00701-MIN are AFFIRMED with MODIFICATION that Cagayan Electric Power and Light Company, Inc. is ordered to charge Ferrochrome Philippines, Inc. only the National Power Corporation industrial rates provided in the agreement between Ferrochrome Philippines, Inc. and National Power Corporation from March 25, 1990 to October 10, 1991, and in case it has previously received payment, to refund any excess amounts received to Ferrochrome Philippines, Inc. These excess amounts shall earn 6% interest per annum from the date of finality of this Resolution until full refund is made.

Ferrochrome Philippines, Inc. and Cagayan Electric Power and Light Company, Inc. are also directed to comply with the final and executory Decision of the Regional Trial Court-Quezon City in Civil Case No. Q-35945 requiring the execution of a power supply contract. Until such contract is signed, in order to avert further dispute, the parties' relationship shall be governed by their agreement dated October 11, 1991. AScHCD

SO ORDERED."

 

Very truly yours,

 

(SGD.) LIBRADA C. BUENADivision Clerk of Court

 

Footnotes

1.Rollo, p. 79.

2.Id.

3.Id.

4. An Act Revising the Charter of the National Power Corporation.

5.Rollo, p. 79.

6. An Act Granting the Cagayan Electric Power and Light Co., Inc. a Franchise to Install, Operate and Maintain an Electric Light, Heat and Power System in the City of Cagayan de Oro and Its Suburbs.

7.Rollo, pp. 79-80.

8.Id.

9.Id. at 128-139.

10.Id. at 139.

11.Cagayan Electric Power and Light Company, Inc. v. National Power Corporation, G.R. No. 72085, December 28, 1989, 180 SCRA 628.

12. Which provides "[C]ontinue direct connection for industries authorized under the BOI-NPC Memorandum of Understanding of 12 January 1981, until such time as the appropriate regulatory board determines that direct connection of industry to NPC is no longer necessary in the franchise area of the specific utility or cooperative. Determination shall be based in the utility or cooperatives meeting the standards of financial and technical capability with satisfactory guarantees of non-prejudice to industry to be set in consultation with NPC and relevant government agencies and reviewed periodically by the regulatory board." Rollo, p. 82.

13.Id.

14.Id.

15.Rollo, p. 83.

16.Id. at 84-85.

17.Id. at 86.

18.Id.

19.Rollo, p. 87.

20.Id.; raffled to Branch 24, RTC-Cagayan de Oro City and docketed as Civil Case No. 90-249.

21.Rollo, pp. 87-88.

22.Id. at 88-89.

23.Id. at 90.

24.Id. at 90-91.

25.Id. at 91-92.

26.Id. at 92-93.

27.Id. at 93.

28.Id. at 93-94.

29.Id. at 94.

30.Id. at 145-176. Penned by Judge Leonardo N. Demecillo.

31.Id. at 96-97.

32. In CA-G.R. CV No. 00701-MIN, penned by Associate Justice Angelita A. Gacutan, with the concurrence of Associate Justices Rodrigo F. Lim, Jr. and Nina G. Antonio-Valenzuela, id. at 77-125.

33.Id. at 99.

34.Id. at 103, 107.

35.Id. at 108-110.

36.Id. at 110.

37.Id. at 117.

38. G.R. No. 127371, April 25, 2002, 381 SCRA 582.

39.Rollo, pp. 119-120.

40.Id. at 112-113.

41.Id. at 121-122.

42.Id. at 31.

43.Id. at 52-53.

44.Green Acres Holdings, Inc. v. Cabral, G.R. No. 175542, June 5, 2013, 697 SCRA 266, 282.

45.Rollo, p. 137.

46.PD 269, Sec. 3 (m).

47.G.R. No. 152569, May 31, 2004, 430 SCRA 389, 403.

48.Batelec II Electric Cooperative, Inc. v. Energy Industry Administration Bureau and National Power Corporation, G.R. No. 135925, December 22, 2004, 447 SCRA 482, 502; National Power Corporation v. Cañares, G.R. No. L-61637, December 3, 1985, 140 SCRA 329, 336; Alger Electric, Inc. v. Court of Appeals and Northern Cement Corporation, G.R. No. L-34298, February 28, 1985, 135 SCRA 37, 46.

49.National Power Corporation v. Jacinto, G.R. No. L-67143, January 31, 1985, 134 SCRA 431.

50.National Power Corporation v. Cañares, G.R. No. L-61637, December 3, 1985, 140 SCRA 329, 335-336.

51.Id.; National Power Corporation v. Court of Appeals, G.R. No. L-78605, May 5, 1988, 161 SCRA 100.

52.Samar II Electric Cooperative, Inc. v. Quijano, G.R. No. 144474, April 27, 2007, 522 SCRA 364; Manila Electric Company v. Spouses Sulpicio, G.R. No. 195145, February 10, 2016, 783 SCRA 597, 605.

53.National Power Corporation v. Vera, G.R. No. 83558, February 27, 1989, 170 SCRA 721, 722; The NPC's Revised Charter, RA 6395, mandated it to undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Hence, the NPC carries out power generating functions. With the enactment of RA 9136, otherwise known as the Energy Power Industry Reform Act (EPIRA) of 2001, however, power generation is no longer considered a public utility operation. Section 6 of EPIRA provides that any law to the contrary notwithstanding, power generation shall not be considered a public utility operation. For this purpose, any person or entity engaged or which shall engage in power generation and supply of electricity shall not be required to secure a local or national franchise.

54.National Power Corporation v. Court of Appeals, G.R. No. 112702, September 26, 1997, 279 SCRA 506, 524.

55.Nueva Ecija I Electric Cooperative, Inc. v. Energy Regulatory Commission, G.R. No. 180642, February 3, 2016, 783 SCRA 22, 45.

56.Rollo, p. 81.

57.Id. at 112.

58.CIVIL CODE, Art. 1305.

59.CIVIL CODE, Art. 1318.

60.Heirs of Intac v. Court of Appeals, G.R. No. 173211, October 11, 2012, 684 SCRA 88, 98.

61.CIVIL CODE, Art. 1356.

62.G.R. No. 159373, November 16, 2006, 507 SCRA 63.

63.Id. at 72.

64.Manila Electric Company v. Spouses Ramos, G.R. No. 195145, February 10, 2016, 783 SCRA 597, 605.

65.Rollo, p. 28.

66.Id. at 205.

67.Id.

68.Rollo, p. 55.

69.Id. at 83.

70.Id. at 61.

71.Id. at 91.

72.Id. at 61.

73.Id. at 140-144.

74.The agreement provides:

xxx xxx xxx

   3. For FERROCHROME's power consumptions provided by CEPALCO, FERROCHROME shall pay for such power at prevailing NPC Industrial Tariff Schedule for Mindanao power grid plus two (2) per cent thereof, as franchise tax, in two (2) separate checks. FERROCHROME further agrees to pay a one (1%) percent PHIVIDEC royalty to CEPALCO, unless and until FERROCHROME shall have secured and submitted to CEPALCO PHIVIDEC's written waiver of said one (1%) percent royalty.

75.See cases in footnote 48.

76.Rollo, pp. 49-54.

77.According to the CA:

   Indeed, there is no question that FPI was not impleaded as a party litigant in Civil Case No. Q-35945. However, there is abundance of uncontroverted evidence extant on record that FPI was fully aware of the institution of Civil Case No. Q-35945 by CEPALCO against NAPOCOR. In the said case, the RTC of Quezon City issued a preliminary injunction, enjoining NAPOCOR from directly connecting and supplying power, current and energy to industrial consumers, subject to certain conditions. This was made known to FPI, as shown in its communication [dated] November 11, 1982 addressed to CEPALCO's counsel, Atty. Gregorio Purugganan. It also appears that in Civil Case No. Q-35945, several pleadings were filed by NAPOCOR that bore the conformity and agreement of FPI, through its counsel, Atty. Francis E. Garchitorena, in the Manifestation and Motion, Joint Supplemental Manifestation and Motion, and the Joint Motion. FPI admits in its appellee's brief that it, together with NAPOCOR, filed an Urgent Motion for Clarification on matters bearing on the Decision of the RTC of Quezon City (Id. at 107-108).

78.Id. at 83.

79.Id. at 84-85.

80.Id. at 104.

81.Id.

82.G.R. No. 107809, July 5, 1993, 224 SCRA 500.

83.Rollo, p. 121.

84.Id. at 122.

85.Id. at 87.

86.Aboitiz v. Regino, supra note 82.