THIRD DIVISION

[G.R. No. 126074. February 24, 1998]

RTC, seeking to enjoin MERALCO from implementing the suspension of electric

service.
Thereafter, on November 9, 1992, petitioners filed a motion for the consolidation
of the two cases, which was granted, resulting in the joint trial of said cases before
Branch 104 of the Quezon City RTC.
On November 27, 1992, the trial court issued the corresponding preliminary
injunction.

RIDJO

TAPE
&
CHEMICAL
CORP.
and
RIDJO
PAPER
CORPORATION, petitioners, vs. HON. COURT OF APPEALS, MANILA
ELECTRIC CO., HON. PRESIDING JUDGE, Branch 104-REGIONAL
TRIAL COURT OF QUEZON CITY, respondents.

After due trial, the lower court rendered a decision, the dispositive portion of
which reads:

ROMERO, J.:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiff(s) and
against the defendants:

Before us is a petition to review the decision [1] of the Court of Appeals which
reversed that of the Regional Trial Court of Quezon City, Branch 104 in Civil Case
Nos. Q-92-13845 and Q-92-13879 ordering petitioners to pay private respondent
Manila Electric Co. (MERALCO) the amount of P415,317.66 and P89,710.58 plus the
costs of suit. This petition involves the two cases filed by petitioners which were
eventually consolidated.

1. Making the Injunction permanent, enjoining the defendants in both cases, and all
their subordinates, legal representatives, electric meter readers and technicians from
committing acts of dispossession/disruption of electric power on the subject premises
located at the compound of Ridjo Tape and Chemical Corporation and Ridjo Paper
Corporation located at 64 and 68 Judge Juan Luna St., San Francisco del Monte,
Quezon City.

Civil Case No. Q-92-13845:

On November 16, 1990, petitioners applied for and was granted electric service
by MERALCO. Ten months later, however, or on September 4, 1991, petitioners
received a letter from MERALCO demanding payment of P415,317.66, allegedly
representing unregistered electric consumption for the period November 7, 1990, to
February 13, 1991. MERALCO justified its demand on the ground that the
unregistered electric consumption was due to the defects of the electric meter located
in the premises of petitioners.
Since petitioners refused to pay the amount, MERALCO notified them that in the
event the overdue account remained unpaid, it would be forced to disconnect their
electricity. Alarmed by this development, petitioners, instead of settling the amount,
filed on October 29, 1992 a case before Branch 98 of the Quezon City RTC for the
issuance of a writ of preliminary injunction and/or temporary restraining order to
forestall any planned disconnection by MERALCO.
On November 19, 1992, the trial court granted the prayer for preliminary
injunction.
Civil Case No. 13879:
On July 30, 1992, petitioners received another demand letter from MERALCO,
this time requiring them to pay the amount of P89,710.58 representing the
unregistered electric consumption for the period July 15, 1991 to April 13, 1992, the
deficiency again due to the defective meter installed in petitioners compound.
MERALCOs demand having remained unheeded, petitioners were advised that
their electric service would be disconnected without further notice.Hence, on
November 5, 1992, petitioners filed a case before Branch 104 of the Quezon City

2. Ordering defendants to pay the cost of suit.

Defendants counterclaim on (the) two cases are (sic) denied for lack of merit.
MERALCO appealed to the Court of Appeals which, on January 22, 1996,
reversed the trial courts finding, to wit:
WHEREFORE, the appealed judgment is REVERSED; and appellees Ridjo Tape and
Chemical Corporation and Ridjo Paper Corporation are hereby ordered to pay subject
differential billings of P415,317.66 and P89,710.58, respectively. Costs against the
appellees.[2]
Aggrieved, petitioners filed a motion for reconsideration, which was denied by
the Court of Appeals in a resolution dated August 14, 1996.[3] Hence, this petition.
From the pleadings filed by the parties, it can be deduced that the only issue to
be resolved is whether petitioners, despite the absence of evidence of tampering, are
liable to pay for the unregistered electrical service.
For a better understanding of the two cases, the terms and conditions of the
Service Agreement regarding payments are reproduced:
PAYMENTS
Bills will be rendered by the Company to the Customer monthly in accordance with
the applicable rate schedule. Said Bills are payable to collectors or at the main or

branch offices of the Company or at its authorized banks within ten (10) days after the
regular reading date of the electric meters. The word month as used herein and in the
rate schedule is hereby defined to be the elapsed time between two succeeding
meter readings approximately thirty (30) days apart. In the event of the stoppage or
the failure by any meter to register the full amount of energy consumed, the Customer
shall be billed for such period on an estimated consumption based upon his use of
energy in a similar period of like use. (Underscoring supplied)
In disclaiming any liability, petitioners assert that the phrase stoppage or failure
by any meter to register the full amount of energy consumed can only refer to
tampering on the part of the customer and not mechanical failure or defects.
[4]
MERALCO, on the other hand, argues that to follow the interpretation advanced by
petitioners would constitute an unjust enrichment in favor of its customers.[5]
Evidently, the Service Contract between petitioners and MERALCO partakes of
the nature of a contract of adhesion as it was prepared solely by the latter, the only
participation of the former being that they affixed or adhered their signature thereto,
[6]
thus, leaving no room for negotiation and depriving petitioners of the opportunity to
bargain on equal footing.[7] Nevertheless, these types of contracts have been declared
to be binding as ordinary contracts because the party adhering thereto is free to reject
it in its entirety.[8]
Being an ordinary contract, therefore, the principle that contracting parties can
make stipulations in their contract provided they are not contrary to law, morals, good
customs, public order or public policy, stands strong and true.[9] To be sure, contracts
are respected as laws between the contracting parties, and they may establish such
stipulations, clauses, terms and conditions as they may want to include. [10] Since both
parties offered conflicting interpretations of the stipulation, however, then judicial
determination of the parties intention is mandated. [11] In this regard, it must be
stressed that in construing a written contract, the reason behind and the
circumstances surrounding its execution are of paramount importance to place the
interpreter in the situation occupied by the parties concerned at the time the writing
was executed.[12]
With these pronouncement as parameters, and considering the circumstances
of the parties, we are constrained to uphold MERALCOsinterpretation.
At this juncture, we hasten to point out that the production and distribution of
electricity is a highly technical business undertaking,[13] and in conducting its
operation, it is only logical for public utilities, such as MERALCO, to employ
mechanical devices and equipment for the orderly pursuit of its business.
It is to be expected that the parties were consciously aware that these devices
or equipment are susceptible to defects and mechanical failure.Hence, we are not
prepared to believe that petitioners were ignorant of the fact that stoppages in electric
meters can also result from inherent defects or flaws and not only from tampering or
intentional mishandling.
Clearly, therefore, the rationale of the provision in the Service Agreement was
primarily to cover situations similar to the instant case, for there are instances when
electric meters do fail to record the quantity of the current used for whatever reason.
[14]
It is precisely this kind of predicament that MERALCO seeks to protect itself from
so as to avert business losses or reverses. It must be borne in mind that construction

of the terms of a contract which would amount to impairment or loss of right is not
favored; conservation and preservation, not waiver, abandonment or forfeiture of a
right, is the rule.[15] Since MERALCO supplied electricity to petitioners for a fee, no
intent to donate the same can be gleaned from the terms of the Agreement.Hence,
the stipulation must be upheld.
Corollarily, it must be underscored that MERALCO has the imperative duty to
make a reasonable and proper inspection of its apparatus and equipment to ensure
that they do not malfunction,[16] and the due diligence to discover and repair defects
therein. Failure to perform such duties constitutes negligence.[17]
A review of the records, however, discloses that the unpaid charges covered the
periods from November 7, 1990 to February 13, 1991 for Civil Case No. Q-92-13045
and from July 15, 1991 to April 13, 1992 for Civil Case No. 13879, approximately
three months and nine months, respectively.On such basis, we take judicial notice
that during those periods, personnel representing MERALCO inspected and
examined the electric meters of petitioners regularly for the purpose of determining
the monthly dues payable. So, why were these defects not detected and reported on
time?
It has been held that notice of a defect need not be direct and express; it is
enough that the same had existed for such a length of time that it is reasonable to
presume that it had been detected,[18] and the presence of a conspicuous defect
which has existed for a considerable length of time will create a presumption of
constructive notice thereof.[19] Hence, MERALCOs failure to discover the defect, if
any, considering the length of time, amounts to inexcusable negligence. Furthermore,
we need not belabor the point that as a public utility, MERALCO has the obligation to
discharge its functions with utmost care and diligence.
Accordingly, we are left with no recourse but to conclude that this is a case of
negligence on the part of MERALCO for which it must bear the consequences. Its
failure to make the necessary repairs and replacement of the defective electric meter
installed within the premises of petitioners was obviously the proximate cause of the
instant dispute between the parties.
Indeed, if an unusual electric consumption was not reflected in the statements of
account of petitioners, MERALCO, considering its technical knowledge and vast
experience in providing electric service, could have easily verified any possible error
in the meter reading. In the absence of such a mistake, the electric meters
themselves should be inspected for possible defects or breakdowns and forthwith
repaired and, if necessary, replaced.Furthermore, if MERALCO discovered that
contraptions or illegal devices were installed which would alter the result of the meter
reading, then it should have filed the appropriate criminal complaint against
petitioners under Presidential Decree No. 401.[20]
The rationale behind this ruling is that public utilities should be put on notice, as
a deterrent, that if they completely disregard their duty of keeping their electric meters
in serviceable condition, they run the risk of forfeiting, by reason of their negligence,
amounts originally due from their customers.Certainly, we cannot sanction a situation
wherein the defects in the electric meter are allowed to continue indefinitely until
suddenly the public utilities concerned demand payment for the unrecorded electricity
utilized when, in the first place, they should have remedied the situation
immediately. If we turn a blind eye on MERALCOs omission, it may encourage
negligence on the part of public utilities, to the detriment of the consuming public.

In view of the foregoing discussion, the liability of petitioners for consumed but
unrecorded electricity must be limited by reason of MERALCOs negligence. Hence,
an equitable solution would be for petitioners to pay only the estimated consumption
on a three-month average before the period in controversy. To hold otherwise would
unjustly enrich petitioners who would be allowed to utilize additional electricity, albeit
unrecorded, at no extra cost.
To summarize, it is worth emphasizing that it is not our intention to impede or
diminish the business viability of MERALCO, or any public utility company for that
matter. On the contrary, we would like to stress that, being a public utility vested with
vital public interest, MERALCO is impressed with certain obligations towards its
customers and any omission on its part to perform such duties would be prejudicial to
its interest. For in the final analysis, the bottom line is that those who do not exercise

such prudence in the discharge of their duties shall be made to bear the
consequences of such oversight.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in
CA-G.R. CV No. 44010 is hereby MODIFIED. Petitioners are ordered to pay
MERALCO the amount P168,342.75, representing its average electric consumption
three months prior to the period in controversy.[21]No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), and Kapunan, JJ., concur.
Purisima, J., took no part being the ponente below.