S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA vs. DRUGMAKERS LABO RA TORIES, INC. and ELIEZER DEL MUNDO, G.R. No. 200408, November 12, 2014; with accompanying case - S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA vs. DRUGMAKERS LABO RA TORIES, INC. and ELIEZER DEL MUNDO, G.R. No. 200416, November 12, 2014.
“x x x.
The RTC Ruling
In a Decision29 dated September 13, 2002, the RTC ruled in favor of respondents, and accordingly ordered petitioners, Hizon Laboratories and Rafael, to jointly and severally pay Drugmakers the following amounts: (a) P6,000,000.00 as actual damages representing loss of income and/or loss of business opportunity; (b) P500,000.00 as moral damages; (c) P100,000.00 as exemplary damages; (d) P250,000.00 as attorney’s fees; and (e) costs of suit.30
It found that both the Agreement and the Deed of Sale/Assignment explicitly provided that Drugmakers had the right to exclusively manufacture the subject 28 pharmaceutical products; thus, the act of S.V. More in contracting with Hizon Laboratories to manufacture some of the said products constituted a clear violation of their contractual obligations for which they are liable for damages.31 Moreover, it disregarded petitioners’ claim that Atty. Carag surreptitiously inserted certain gratuitous provisions into the subject contracts for being unsubstantiated in the light of Alberto’s admission that he prepared the draft of the Agreement and had read the Agreement and Deed of Sale/Assignment before signing the same.32 Being aware of the fact that petitioners are legally obliged to maintain Drugmakers as the sole and exclusive manufacturer of the subject pharmaceutical products, the RTC declared Hizon Laboratories and Rafael guilty of bad faith in agreeing to manufacture at least six (6) of them, hence, liable for damages together with petitioners.33
X x x.
The CA Ruling
In a Decision37 dated August 5, 2011, the CA affirmed the RTC Ruling with modifications in that: (a) it deleted the award for moral and exemplary damages; and (b) it absolved Rafael and Hizon Laboratories from any liability.
It found that petitioners indeed breached their contractual obligation when they entered into another manufacturing agreement with Hizon Laboratories, and its owner, Rafael, instead of availing of the option under the Agreement to invalidate the same when Drugmakers failed to provide them with a copy of the manufacturing agreement for the renewal of the license to operate.38 Hence, respondents are entitled to be paid actual damages representing unrealized profits,39 attorney’s fees, and costs of suit.40 The CA, however, decreed that since Drugmakers is a juridical entity, it is not therefore entitled to moral and exemplary damages.41
Further, the CA absolved Hizon Laboratories and Rafael from any liability as they were not parties to the Agreement and Deed of Sale/Assignment nor can they be faulted for manufacturing the pharmaceutical products because their actions were only the direct consequences of petitioners’ breach of their obligations.42
X x x.
The Issue Before the Court
The primordial issue for the Court’s resolution is whether or not the CA correctly affirmed petitioners’ liability for breach of contract.
X x x.
These provisions notwithstanding, records disclose that petitioner S.V More, through the CMPP and absent the prior written consent of respondent Drugmakers, as represented by its President, respondent Eliezer, contracted the services of Hizon Laboratories to manufacture some of the pharmaceutical products covered by the said contracts. Thus, since the CMPP with Hizon Laboratories was executed on October 23, 1993,54 or seven (7) days prior to the expiration of the CMA on October 30, 1993, it is clear that S.V. More, as well as its President, petitioner Alberto, who authorized the foregoing, breached the obligation to recognize Drugmakers as exclusive manufacturer, thereby causing prejudice to the latter.
While the CA correctly affirmed the existence of the aforementioned breach, the Court, however, observes that the appellate court’s award of actual damages (due to loss of profits) in the amount of P6,000,000.00 was erroneous due to improper factual basis.
Records reveal that in their attempt to prove their claim for loss of profits corresponding to the aforesaid amount, respondents based their computation thereof on a Sales Projection Form55 for the period November 1993 to February 1995.56 However, it is readily observable that the breach occurred only for a period of seven (7) days, or from October 23, 1993 until October 30, 1993– that is, the date when the CMA expired. Notably, the CMA – from which stems S.V. More’s obligation to recognize Drugmakers’s status as the exclusive manufacturer of the subject pharmaceutical products and which was only carried over in the other two (2) above-discussed contracts – was never renewed by the parties,57 nor contained an automatic renewal clause, rendering the breach and its concomitant effect, i.e., loss of profits on the part of Drugmakers, only extant for the limited period of, as mentioned, seven (7) days.
Aside from the lack of substantiation as regards the length of time for which supposed profits were lost, it is also evident that only six (6) of the 28 pharmaceutical products58were caused by petitioners to be manufactured by Hizon Laboratories.
Since the sales projection on which the CA based its award for actual damages was derived from figures representing the "alleged unregistered or fabricated sales invoices" of E.A. Northam from 1990 to 199359 and the "desired profit" of 15-20%,60 it would therefore be a legal mishap to sustain that award. As case law holds, the amount of loss warranting the grant of actual or compensatory damages must be proved with a reasonable degree of certainty, based on competent proof and the best evidence obtainable by the injured party.61 The CA’s finding on respondents’ supposed loss of profits in the amount of P6,000,000.00 based on the erroneous sales projection hardly meets this requirement. Accordingly, it must be set aside.
Nevertheless, considering that respondents palpably suffered some form of pecuniary loss resulting from petitioners’ breach of contract, the Court deems it proper to, instead, award in their favor the sum of P100,000.00 in the form of temperate damages.62 This course of action is hinged on Article 2224 of the Civil Code which states that "temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty," as in this case.
As a final matter, the Court resolves that the CA did not gravely abuse its discretion in awarding respondents' attorney's fees, it appearing that the latter were compelled to litigate in order to protect their rights and interests in this case,63 hence, justifying the same.
X x x.”
61 Calibre Traders, Inc. v.Bayer Philippines, Inc., G.R. No. 161431, October 13, 2010, 633 SCRA 34, 56.
62 See Sime Darby Pilipinas, Inc. v. Mendoza, G.R. No. 202247, June 19, 2013, 699 SCRA 290, 301-302.
63 See Maglasang v. Northwestern University, Inc., G.R. No. 188986, March 20, 2013, 694 SCRA 128, 140.