National Power Corporation vs. Benguet Electric Cooperative, Inc.

The principle of unjust enrichment under Article 22 of the Civil Code is not a catch-all remedy and cannot be invoked when a valid contract exists between the parties; the provisions of the contract shall govern the parties' rights and obligations, including the remedies for breaches or errors.

National Power Corporation (NPC), a government-owned corporation, supplied electricity to Benguet Electric Cooperative, Inc. (BENECO), a power distributor, under a franchise agreement and a formal Transition Contract for the Supply of Electricity. The contract governed the terms of power delivery, metering, and billing between the two entities. The dispute arose from a billing error at the Irisan Substation, one of the delivery points from NPC to BENECO.

• On January 1, 1998, NPC and BENECO entered into a Transition Contract for the Supply of Electricity, under which NPC would supply power to BENECO at various delivery points, including the Irisan Substation.
• In 1999, NPC installed the metering system at the Irisan Substation and, after testing, set the Current Transformer Ratio (CTR) at 75/5, resulting in a billing multiplier of 5,196.31.
• From May 2000 to February 2004, NPC billed BENECO using this multiplier, and BENECO consistently paid its bills, availing of a Prompt Payment Discount (PPD).
• In February 2004, a BENECO engineer, Lawrence Umaming, discovered unusually low systems losses and alerted the National Transmission Corporation (TRANSCO), which had taken over NPC's transmission functions.
• TRANSCO's tests revealed that the CTR was incorrectly set at 75/5 instead of the correct 150/5, meaning NPC had been billing BENECO for only half of the electricity actually delivered.
• On May 13, 2004, NPC sent a demand letter to BENECO for the underbilled amount of P157,743,314.43 covering the entire four-year period.
• BENECO refused to pay the full amount, attributing the error to NPC's negligence. In response, NPC revoked BENECO's PPD privilege and threatened to disconnect its power supply.
• This prompted BENECO to file a complaint for injunction and damages with the RTC, arguing that under their contract, NPC had waived its claim for errors not corrected within 90 days.
• During the trial, it was established that determining the correct multiplier was the sole responsibility of NPC, and BENECO had no access to NPC's metering system.

• NPC argued that BENECO is liable for the full amount of the underbilling because it consumed the electricity, and failure to pay would result in unjust enrichment at NPC's expense.
• NPC contended that BENECO, having technical expertise, was not a simple end-user and should have noticed the billing discrepancy from its unusually low systems losses, thus making it contributorily negligent.
• NPC asserted its right to revoke the Prompt Payment Discount (PPD), claiming it is a mere privilege that BENECO was disqualified from enjoying due to its unpaid underbilling, which constituted a delinquent account.

• BENECO argued that it is not liable for the full underbilling amount because Section 25 of the Transition Contract deems any claim on billing errors waived if not corrected within ninety (90) days from the billing date.
• BENECO contended that the four-year failure to detect the incorrect multiplier was a result of NPC's own gross and inexcusable negligence, and NPC must bear the resulting losses.
• BENECO claimed it was still entitled to the 3% Prompt Payment Discount (PPD) as it had been promptly paying all its current monthly bills, and the disputed underbilling does not constitute a settled delinquent account.

• Procedural Issues:
  • N/A
• Substantive Issues:
  • Whether the principle of unjust enrichment is applicable to compel BENECO to pay the full amount of the underbilling.
  • Whether BENECO's liability for the underbilling is governed and limited by the 90-day corrective period stipulated in Section 25 of the Transition Contract.
  • Whether BENECO is entitled to the Prompt Payment Discount despite the disputed underbilling claim from NPC.

• Procedural:
  • N/A
• Substantive:
  • The petition was PARTLY GRANTED. The Court ruled that the principle of unjust enrichment is not applicable because the relationship and obligations between NPC and BENECO are explicitly governed by their Transition Contract. When a contract exists, its terms are the law between the parties, and any action must be based on its provisions, not on an auxiliary principle like unjust enrichment.
  • The Court held that BENECO is liable for the underbilling, but its liability is limited by Section 25 of the Transition Contract. The use of a wrong multiplier constitutes an "omission," which is a type of billing error that must be corrected within ninety (90) days from the customer's receipt of the bill. NPC was deemed to have waived its claim for any underbilling on bills received by BENECO more than 90 days before the demand letter of May 17, 2004. Therefore, BENECO is only liable for underbillings on bills received from February 17, 2004, to May 17, 2004. The case was remanded to the RTC to compute this specific amount.
  • The Court affirmed that BENECO is entitled to the Prompt Payment Discount (PPD). At the time NPC revoked the discount, the underbilling claim was still undetermined and highly disputed. Since BENECO continued to pay its current monthly bills in full and on time, it could not be considered to have a delinquent account that would justify the unilateral revocation of the PPD by NPC.

• Unjust Enrichment (Accion in rem verso) — This principle, embodied in Article 22 of the Civil Code, holds that a person who acquires something at the expense of another without just or legal ground must return it. The Court ruled this doctrine was inapplicable because it is an auxiliary action that can only be invoked when there is no other remedy based on contract, quasi-contract, crime, or quasi-delict. Since a contract existed between NPC and BENECO, their dispute must be resolved based on its terms.
• Obligations Arising from Contract (Pacta Sunt Servanda) — The Court affirmed the principle that a contract is the law between the parties and its provisions must be complied with in good faith. The Court strictly applied Section 25 of the Transition Contract, which set a 90-day period for correcting billing errors classified as "omissions" (like using a wrong multiplier), holding that claims beyond this period were contractually waived.
• Diligence Required of Public Utilities — The Court reiterated the doctrine that entities engaged in the supply of electricity, whether public utilities or government corporations, are expected to discharge their functions with the utmost care and diligence. It characterized NPC's failure to discover its own error for four years as gross negligence and stated that allowing full recovery would encourage such complacency to the detriment of the public.

• "The principle of unjust enrichment under Article 22 of the Civil Code is not a catch-all provision that can be conveniently invoked when a party has suffered a loss. This is especially true when a contract exists between the parties."

• National Transmission Corporation v. Misamis Oriental I Electric Cooperative, Inc. — This was the controlling precedent, as it involved a similar contract provision (Section 25) and a similar factual scenario (wrong multiplier). The Court followed its ruling that using an incorrect multiplier is an "omission" subject to the 90-day correction period, not an error from an "inaccurate meter" that can be corrected anytime.
• University of the Philippines v. Philab Industries Inc. — Cited to define the elements of unjust enrichment and to emphasize its nature as an auxiliary action that is unavailable when a primary remedy under a contract exists.
• Shinryo (Phil) Company, Inc. v. RRN — Referenced to support the ruling that a claim based on unjust enrichment will not prosper if the claimant has an available action based on a contract.
• Panay Electric Co., Inc. v. Court of Appeals and Ridjo Tape & Chemical Corp. v. Court of Appeals — These cases were distinguished because the contracts involved did not have a specific provision like Section 25. However, the Court noted their relevance in establishing the high standard of care and diligence required of electricity suppliers.

• Article 22, New Civil Code — This article on unjust enrichment was central to NPC's argument, but the Court ruled it was inapplicable because a contract governed the parties' relationship.
• Rule 45, Rules of Court — This rule provided the procedural basis for NPC's petition for review on certiorari before the Supreme Court.
• Section 25, Transition Contract for the Supply of Electricity — This contractual provision was the primary basis for the Court's ruling. It established a 90-day period for the supplier (NPC) to correct billing errors arising from wrong readings, arithmetical mistakes, or omissions, after which the claim is deemed waived.