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.

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.

MERALCO's 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 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.

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

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

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.

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 court's 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." (Italics 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 MERALCO's interpretation.

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, MERALCO's 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 MERALCO's 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 MERALCO's 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, J., concur.

Purisima, J., took no part being the ponente below.

---

^[1] Penned by Justice Fidel P. Purisima, concurred in by Justices Fermin A. Martin and Conchita Carpio Morales.

^[2] Rollo, pp. 30-40.

^[3] Ibid., p. 43.

^[4] Id., p. 64.

^[5] Id., p. 53.

^[6] Philippine Bank of Communications v. Court of Appeals, 253 SCRA 241 (1996).

^[7] Geraldez v. Court of Appeals, 230 SCRA 320 (1994).

^[8] Serra v. Court of Appeals, 229 SCRA 60 (1994).

^[9] Azcuna, Jr. v. Court of Appeals, 255 SCRA 215 (1996).

^[10] Manila Bay Yacht Club v. CA, 245 SCRA 715 (1995).

^[11] China Banking Corporation v. Court of Appeals, 265 SCRA 327 (1996).

^[12] Cuizon v. Court of Appeals, 260 SCRA 645 (1996).

^[13] 29 C.J.S. 856.

^[14] U.S. v. Puerto Rico Water Resources Authority, 135 F. Supp. 532.

^[15] Vicente Gotamco Hermanos v. Shortwell, 38 SCRA 107 (1971).

^[16] Mississippi Power Co. v. Thomas, 162 Miss 734.

^[17] Osberne v. Tennessee Electric Power Co., 158 Tenn 278.

^[18] Fitzgerald v. Edison Electric Illuminating Co., 280 Pa. 540.

^[19] Baker v. Leland Stanford University, 133 Cal App. 243.

^[20] Under P.D. No. 401, anyone who "tampers and/or uses tampered . . . electrical meters or jumpers or other devices whereby . . . electricity is stolen, . . ., shall, upon conviction, be punished by prision correccional in its minimum period or a fine ranging from two thousand to six thousand pesos, or both."

^[21]

Civil Case No. Q-92-13845 -	P 415,317.66
Civil Case No. 13879           -	+   89,710.58
	____________
	P 505,028.24
Divided by 9 months
(representing the total period in controversy for both Civil Cases)	÷                9
	____________
	P   56,114.25
Multiplied by three months	×                3
	____________
	P 168,342.75