National Power Corporation vs. Philipp Brothers Oceanic, Inc.

A person who merely uses a right pertaining to him, without bad faith or intent to injure, is not liable for damages even if another suffers injury thereby. In the context of public bidding, where the government reserves the right to reject any or all bids, a bidder has no cause to complain unless unfairness or injustice is shown, and the awarding authority's exercise of discretion in disqualifying a bidder, when done in good faith, may not be reviewed by the courts.

The National Power Corporation (NAPOCOR), a government-owned corporation, issued invitations to bid for the supply and delivery of imported coal for its Batangas Coal-Fired Thermal Power Plant. Philipp Brothers Oceanic, Inc. (PHIBRO), an international trading firm, prequalified and participated in the bidding. The contract between the parties was governed by the "Bidding Terms and Specifications," which included a force majeure clause explicitly covering strikes, and an Instruction to Bidders reserving NAPOCOR's right to reject any or all bids.

On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding, PHIBRO's bid was accepted, and NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which PHIBRO received on July 15, 1987. The "Bidding Terms and Specifications" provided that the winning tenderer shall arrange and provide gearless bulk carrier for the shipment of coal to arrive at the discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by the seller, with delivery schedules of 60,000 metric tons on July 20, 1987, and 60,000 metric tons on September 4, 1987.

On July 10, 1987, PHIBRO informed NAPOCOR that industrial disputes might soon plague Australia, the shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the needed coal. From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing the latter that ship owners therein were not willing to load cargo unless a "strike-free" clause was incorporated in the charter party or the contract of carriage. In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause, but NAPOCOR refused.

On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum requirements. Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first coal shipment.

This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with the Regional Trial Court, Branch 57, Makati City. In its complaint, PHIBRO alleged that NAPOCOR's act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith, and prayed for actual, moral, and exemplary damages and attorney's fees. In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay because PHIBRO itself admitted that as of July 28, 1987, those strikes had already ceased, and that even assuming the strikes were still ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas, Philippines." NAPOCOR also claimed that due to PHIBRO's failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher price, and claimed actual damages of P12,436,185.73 and P500,000.00 as litigation expenses.

The trial court found that PHIBRO's delay was due to force majeure and NAPOCOR's own delay in opening a workable letter of credit, and that NAPOCOR acted maliciously in disqualifying PHIBRO. The trial court awarded PHIBRO $864,000 as actual damages representing unrealized profits, $100,000 as moral damages, $50,000 as exemplary damages, and $73,231.91 as reimbursement for expenses, litigation costs, and attorney's fees. The Court of Appeals affirmed in toto, holding that the strikes in Australia from the first week of July to the third week of September 1987 constituted force majeure under the contract, exempting PHIBRO from liability for delay.

• Force Majeure: NAPOCOR argued that the Court of Appeals gravely erred in holding that PHIBRO's delay in delivery was due to NAPOCOR's alleged delay in opening a letter of credit and to force majeure, and not to PHIBRO's own deliberate acts and faults.
• Disqualification: NAPOCOR argued that the Court of Appeals gravely erred in holding that NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings, despite the existence of valid grounds therefor such as serious impairment of its track record.
• Damages: NAPOCOR argued that the Court of Appeals gravely erred in holding that PHIBRO was entitled to injunctive relief, actual or compensatory, moral and exemplary damages, attorney's fees, and litigation expenses despite the clear absence of legal and factual bases for such award.
• PHIBRO's Liability: NAPOCOR argued that the Court of Appeals gravely erred in absolving PHIBRO from any liability for damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period.
• Counterclaims: NAPOCOR argued that the Court of Appeals gravely erred in dismissing NAPOCOR's counterclaims for damages and litigation expenses.

• Force Majeure: PHIBRO maintained that its delayed deliveries were due to force majeure and NAPOCOR's delayed opening of its letter of credit, and that the strikes in Australia from July to September 1987 constituted force majeure under the contract.
• Bad Faith: PHIBRO argued that NAPOCOR's disqualification was capricious, malevolent, iniquitous, discriminatory, oppressive, and unjustified, and that NAPOCOR's real reason for the disqualification was its claim for alleged damages due to the delayed delivery, not PHIBRO's failure to meet minimum prequalification requirements.
• Damages: PHIBRO claimed entitlement to actual damages for unrealized profits, moral damages for injury to its business reputation and credibility in the market, exemplary damages, and attorney's fees, as awarded by the trial court and affirmed by the Court of Appeals.

• Force Majeure: Whether PHIBRO's delay in the delivery of imported coal was excused by force majeure and NAPOCOR's delay in opening a letter of credit.
• Bad Faith in Disqualification: Whether NAPOCOR acted with malice and bad faith in disqualifying PHIBRO from participating in subsequent public biddings.
• Actual Damages: Whether PHIBRO was entitled to actual damages in the amount of $864,000 for unrealized profits from future biddings.
• Moral and Exemplary Damages: Whether PHIBRO, a corporation, was entitled to moral and exemplary damages.
• Attorney's Fees and Litigation Expenses: Whether PHIBRO was entitled to attorney's fees and litigation expenses.

• Force Majeure: Yes. PHIBRO's delay in delivery was excused by force majeure, as the strikes in Australia from the first week of July to the third week of September 1987 were included in the definition of force majeure in Section XVII of the Bidding Terms and Specifications, and NAPOCOR's own delay in opening a workable letter of credit contributed to the delay.
• Bad Faith in Disqualification: No. NAPOCOR did not act with malice and bad faith in disqualifying PHIBRO, as it acted on the strong conviction that PHIBRO had a "seriously-impaired" track record, and the circumstances warranted such contemplation.
• Actual Damages: No. The award of $864,000 in actual damages was erroneous because the claimed unearned profits were speculative and conjectural, not proven with reasonable degree of certainty.
• Moral and Exemplary Damages: No. Moral damages are not generally granted to a corporation, and since NAPOCOR did not act in bad faith, exemplary damages could not be awarded.
• Attorney's Fees and Litigation Expenses: No. Attorney's fees may be awarded only in case the plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith, which was not the case here.

• Force Majeure: The Court of Appeals' factual findings, affirmed by the trial court, established that the strikes in Australia constituted force majeure. Under Article 1174 of the Civil Code, no person shall be responsible for events which could not be foreseen, or which, though foreseen, were inevitable. The contract between PHIBRO and NAPOCOR explicitly defined force majeure to include strikes. Since PHIBRO was prevented by force majeure from complying with its obligation, it could not be held liable for damages for non-performance.

• Bad Faith in Disqualification: The Court ruled that NAPOCOR was not bound under any contract to approve PHIBRO's pre-qualification requirements, and had expressly reserved its right to reject bids under Instruction to Bidders IB-17. Where the right to reject is reserved, the lowest bid or any bid may be rejected on a mere technicality, and a bidder has no cause to complain unless unfairness or injustice is shown. The Court found that NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track record, as at the time of the October 1987 invitation to bid, PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which was due on or before September 5, 1987. The Court also noted that PHIBRO's unexpected offer to deliver 60,000 metric tons of coal at US$31.00 per metric ton for arrival on September 20-21, 1987, while it could not deliver under its existing contract, raised doubts as to the real situation of the coal industry in Australia. The Court held that in determining the existence of good faith, the yardstick is the frame of mind of the actor at the time he committed the act, disregarding actualities or facts outside his knowledge. Since NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded, as manifest from its letters and Board Resolution, NAPOCOR cannot be faulted for entertaining doubts on PHIBRO's qualification. The Court concluded that NAPOCOR's act of disapproving PHIBRO's pre-qualification was without any intent to injure, and was a measure of self-protection.

• Actual Damages: The Court held that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. The trial court's computation of PHIBRO's unrealized profits was based on speculation that PHIBRO "would have won the tenders" for the supply of about 960,000 metric tons of coal, which was too speculative and conjectural. Citing Pantranco North Express, Inc. vs. Court of Appeals and Lufthansa German Airlines vs. Court of Appeals, the Court held that claims for unrealized profits from future biddings are mere expectancies, as there was no assurance that PHIBRO would win the bids.

• Moral and Exemplary Damages: The Court held that moral damages are not, as a general rule, granted to a corporation, as a corporation has no feelings, no emotions, no senses, and cannot experience physical suffering and mental anguish. Since NAPOCOR did not act in bad faith, the award of moral damages was improper. Exemplary damages could not be awarded because under Article 2234 of the Civil Code, the plaintiff must first show that he is entitled to moral, temperate, or compensatory damages.

• Attorney's Fees and Litigation Expenses: The Court held that in the absence of stipulation, a winning party may be awarded attorney's fees only in case the plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith. NAPOCOR was justified in resisting PHIBRO's claim for damages, and did not act in bad faith. The Court also held that a winning party may be entitled to expenses of litigation only where he, by reason of the plaintiff's clearly unjustifiable claims or the defendant's unreasonable refusal to his demands, was compelled to incur said expenditures, which was not the case here.

• Abuse of Rights (Article 19, Civil Code) — Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. A person will be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse. The Court applied this principle in determining whether NAPOCOR abused its right in disqualifying PHIBRO, and found that NAPOCOR acted in good faith, without intent to injure.

• Force Majeure (Article 1174, Civil Code) — No person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. When an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance. The Court applied this doctrine in excusing PHIBRO's delay in delivery, as the strikes in Australia were explicitly included in the contract's force majeure clause.

• Damnum Absque Injuria — Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby suffered by another will not make him liable. The Court applied this principle in holding that NAPOCOR's act of disqualifying PHIBRO, done in good faith, did not make it liable for damages.

• Reservation of Right to Reject Bids in Public Bidding — Where the government reserves the right to reject any or all bids, the lowest bid or any bid may be rejected on a mere technicality, and the losing bidder has no cause to complain nor right to dispute that choice unless an unfairness or injustice is shown. The exercise of such discretion involves quasi-judicial functions, and when honestly exercised, may not be reviewed by the court.

• Actual Damages Must Be Proven with Reasonable Certainty — To recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. A court cannot merely rely on speculations, conjectures, or guesswork as to the fact and amount of damages.

• Moral Damages Generally Not Granted to Corporations — Moral damages are not, as a general rule, granted to a corporation, as a corporation, being an artificial person, has no feelings, no emotions, no senses, and cannot experience physical suffering and mental anguish.

• "Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby suffered by another will not make him liable." — This opening principle states the ratio decidendi of the case, establishing that NAPOCOR's exercise of its right to reject bids, done in good faith, does not give rise to liability for damages.

• "The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to rule otherwise." — This passage affirms the Court of Appeals' finding that PHIBRO's delay was excused by force majeure, as both the Civil Code and the contract's force majeure clause exempted PHIBRO from liability.

• "Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof. A court cannot merely rely on speculations, conjectures, or guesswork as to the fact and amount of damages." — This passage articulates the standard for awarding actual damages, which the Court applied in deleting the $864,000 award for unrealized profits as speculative.

• "Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish." — This passage, quoting LBC Express, Inc. vs. Court of Appeals, states the general rule that moral damages are not granted to corporations.

• Celeste vs. Court of Appeals, 209 SCRA 79 (1992) — Cited as controlling precedent for the rule that where the government reserves the right to reject any or all bids, the losing bidder has no cause to complain unless unfairness or injustice is shown.

• Bureau Veritas vs. Office of the President, 205 SCRA 705 (1992) — Cited for the principle that the discretion to accept or reject a bid and award contracts is vested in government agencies, and courts will not interfere unless it is apparent that it is used as a shield to a fraudulent award.

• Pantranco North Express, Inc. vs. Court of Appeals, 224 SCRA 477 (1993) — Cited as controlling precedent for denying claims for actual damages premised on contracts that were still to be negotiated or awarded through public bidding, as such claims are mere expectancies and highly speculative.

• Lufthansa German Airlines vs. Court of Appeals, 243 SCRA 600 (1995) — Cited for the rule that actual or compensatory damages cannot be presumed, but must be duly proved with reasonable degree of certainty, and that unrealized profits dependent on winning a bid are not a certainty.

• National Power Corporation vs. Court of Appeals, 273 SCRA 420 (1997) — Cited for the rule that claims for unrealized commissions cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which include the reservation of the right to reject any or all bids.

• LBC Express, Inc. vs. Court of Appeals, 236 SCRA 602 (1994) — Cited for the rule that moral damages are not granted to corporations, as they cannot experience physical suffering and mental anguish.

• A.C. Esguerra & Sons vs. Aytona, 4 SCRA 1245 (1962) — Cited for the principle that where the government has made its choice in rejecting bids, unless an unfairness or injustice is shown, the losing bidders have no cause to complain.

• Article 19, Civil Code — Provides that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. The Court applied this provision in determining whether NAPOCOR abused its right in disqualifying PHIBRO.

• Article 1174, Civil Code — Provides that no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. The Court applied this provision in excusing PHIBRO's delay in delivery due to force majeure.

• Article 2200, Civil Code — Provides that indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain. The Court acknowledged this provision but held that the basis of the alleged unearned profits must not be too speculative and conjectural.

• Article 2234, Civil Code — Provides that before the court may consider the question of whether exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory damages. The Court applied this provision in denying exemplary damages to PHIBRO.

• Section 1, Rule 45, Rules of Court — Provides that only questions of law, not questions of fact, may be raised before the Supreme Court in a petition for review. The Court applied this rule in declining to review the factual findings of the lower courts.

Vitug, Panganiban, and Carpio, JJ., concurred.

• Melo, J., dissenting — While agreeing with the majority that PHIBRO's delay in delivery was not due to its fault, Justice Melo dissented from the denial of actual, moral, and exemplary damages to PHIBRO. He argued that the case did not involve the rejection of PHIBRO's bid but the exclusion of a qualified prospective bidder from participating in tenders, which is materially different. He contended that the reservation of the right to reject bids does not include the right to exclude a prospective bidder who has complied with all prequalification requirements. He also argued that PHIBRO's business reputation and credibility in the market suffered due to NAPOCOR's malicious act, and that moral damages may be awarded to a corporation where its good reputation is besmirched, citing Simex International (Manila), Inc. vs. Court of Appeals and other cases.