The Supreme Court ruled that a writ of injunction cannot be enforced against an entity that was not a party to the original case. This decision clarifies that only parties involved in a lawsuit, or their direct successors-in-interest, can be bound by an injunctive writ. This ensures that entities cannot be subjected to court orders without having had the opportunity to participate in the legal proceedings, upholding their right to due process. This ruling is a reaffirmation of the principle that court orders should only affect those who have had their day in court.

Extending the Arm of the Law: Can Injunctions Ensnare Non-Parties?

This case arose from a dispute involving the San Miguel Protective Security Agency (SMPSA) and the National Power Corporation (NPC) regarding a security package bidding. After SMPSA was disqualified, its general manager, Francisco Labao, filed a petition against NPC. The Regional Trial Court (RTC) initially issued a temporary restraining order (TRO) and later a writ of preliminary injunction against NPC, which was eventually made permanent. Subsequently, NPC and Power Sector Assets and Liabilities Management Corporation (PSALM) entered into an operation and maintenance agreement (OMA), transferring the obligation to provide security to PSALM. The central legal question is whether PSALM, a non-party to the original suit between SMPSA and NPC, could be bound by the injunction issued against NPC.

The Court of Appeals (CA) had initially ruled that the injunction was enforceable not only against NPC but also against its agents, representatives, and anyone acting on its behalf, including PSALM. The CA reasoned that PSALM was acting on behalf of NPC and was essentially an assignee of NPC’s responsibilities. PSALM challenged this ruling, arguing that it was a separate entity from NPC and should not be bound by the injunction. The Supreme Court sided with PSALM, emphasizing its distinct legal personality under Republic Act No. 9136, also known as the Electric Power Industry Reform Act of 2001 (EPIRA).

The Supreme Court underscored that Section 49 of EPIRA explicitly created PSALM as a corporate entity separate and distinct from NPC, stating:

Section 49. Creation of Power Sector Assets and Liabilities Management Corporation. – There is hereby created a government owned and controlled corporation to be known as the “Power Sector Assets and Liabilities Management Corporation”, hereinafter referred to as the “PSALM Corp.”, which shall take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate and all other disposable assets. All outstanding obligations of the National Power Corporation arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM Corp. within ninety (90) days from the approval of this Act.

Building on this principle, the Court found that the CA erred in subjecting PSALM to the injunction without PSALM being a party to the case. This was a clear misapplication of the law, as PSALM and NPC have distinct legal identities. The Court also highlighted that Labao was aware that PSALM had become the owner of NPC’s assets and facilities as early as mid-2001. As such, PSALM was an indispensable party whose absence in the original proceedings meant that a final determination could not be justly made.

Furthermore, the Court examined the nature of the Operation and Maintenance Agreement (OMA) between NPC and PSALM. The OMA was designed to delineate the functions of each entity to avoid confusion in the management of assets and facilities. Under the OMA, PSALM, as the owner, was responsible for providing security for all plants and facilities. When PSALM conducted its own public bidding for security services, it was acting in its own interest as the owner, not as an agent of NPC. The Court cited Article 1868 of the Civil Code, defining an agent as:

“A person who binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.”

This definition clarifies that PSALM’s actions were not representative of NPC but were based on its own rights and obligations as the asset owner. The Supreme Court also clarified that PSALM was not a transferee pendente lite or a successor-in-interest of the parties. The transfer of NPC’s assets to PSALM occurred in 2001, while SMPSA’s action was commenced in 2009. Therefore, the action between SMPSA and NPC could not bind PSALM.

Moreover, the security contract between NPC and SMPSA, which ran from 2004 to 2006, had already expired and was being renewed on a monthly basis. This meant there was no existing legal tie binding NPC and SMPSA when the dispute arose. The Court reiterated the principle of relativity of contracts, as embodied in Article 1311 of the Civil Code, which states that contracts take effect only between the parties, their assigns, and heirs. Since there was no privity of contract between SMPSA and PSALM, the latter had no obligation to continue the security contract entered into between NPC and SMPSA.

Finally, the Court addressed SMPSA’s claim that it was entitled to an injunction because it was prejudiced by being deprived of the opportunity to bid for the contract. The Court found that even if SMPSA had not been disqualified, there was no guarantee it would have won the bidding. The income SMPSA sought to protect was merely an expectancy based on the speculative possibility of the contract being awarded to it. The right SMPSA sought to protect by injunction was not in esse, meaning it was not a present and existing right.

In conclusion, the Supreme Court held that the CA exceeded its jurisdiction by including PSALM within the coverage of the TRO and the writ of injunction issued against NPC. Injunctive relief can only bind parties to the action, their privies, or successors-in-interest. A person who is not a party to the action and has not been served with summons cannot be adversely affected by the outcome. This principle conforms to the constitutional guarantee of due process of law. The decision reinforces the fundamental principle that a court order should only affect those who have had the opportunity to be heard and defend their interests in court.

FAQs

What was the key issue in this case?	The key issue was whether a non-party to a suit, specifically PSALM, could be subjected to an injunctive writ issued against one of the parties, NPC. The Court addressed whether PSALM, not initially part of the legal proceedings, could be bound by an order against NPC.
Why did the Court of Appeals include PSALM in the injunction?	The Court of Appeals believed that PSALM was acting on behalf of NPC and was essentially an assignee of NPC’s responsibilities. This led them to conclude that the injunction against NPC should also apply to PSALM.
What was the basis for the Supreme Court’s decision to exclude PSALM?	The Supreme Court emphasized that PSALM is a separate legal entity from NPC, created by the Electric Power Industry Reform Act of 2001 (EPIRA). Since PSALM was not a party to the original suit, it could not be bound by the injunction.
What is the significance of the Operation and Maintenance Agreement (OMA) in this case?	The OMA clarified that PSALM, as the owner of the assets, had its own responsibilities, including providing security. This meant that when PSALM conducted its own bidding for security services, it was acting in its own interest, not as an agent of NPC.
What does “relativity of contracts” mean, and how does it apply here?	“Relativity of contracts” means that contracts only affect the parties involved, their assigns, and heirs. Because there was no contractual relationship between SMPSA and PSALM, PSALM was not obligated to continue the security contract between SMPSA and NPC.
What is a transferee pendente lite, and why was PSALM not considered one?	A transferee pendente lite is someone who acquires an interest in a property or right while a lawsuit is ongoing. PSALM was not a transferee pendente lite because the transfer of assets from NPC to PSALM occurred before SMPSA filed its action.
What was the Court’s view on SMPSA’s claim that it was entitled to an injunction?	The Court found that SMPSA’s claim was based on a mere expectancy because there was no guarantee that SMPSA would have won the bidding even if it had not been disqualified. The right SMPSA sought to protect was not a present and existing right.
What is the key takeaway regarding who can be bound by an injunction?	The key takeaway is that an injunction can only bind parties to the action, their privies, or successors-in-interest. A person who is not a party to the action and has not been served with summons cannot be adversely affected by the outcome, ensuring due process.

This ruling underscores the importance of due process and the principle that court orders should only affect those who have had an opportunity to be heard. It serves as a reminder that extending the reach of an injunction to non-parties can be a violation of their rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION (PSALM) VS. COURT OF APPEALS (21ST DIVISION), AND FRANCISCO LABAO, AS GENERAL MANAGER OF SAN MIGUEL PROTECTIVE SECURITY AGENCY (SMPSA), G.R. No. 194226, February 15, 2017