S.V. More Pharma Corporation v. Drugmakers Laboratories, Inc.
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.
G.R. Nos. 200408 and 200416, 12 November 2014
“Eliezer, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Atty. Carag) (Del Mundo Group) are the registered owners of fifty percent (50%) (i.e., 250,000 shares of stock) of E.A. Northam Pharma Corporation (E.A. Northam), a domestic corporation which exclusively distributes and markets 28 various pharmaceutical products that are exclusively manufactured by Drugmakers, a domestic corporation under the control of Eliezer. The remaining fifty percent (50%) in E.A. Northam are owned by Alberto and Nilo S. Valente (Santillana Group). In an Agreement dated May 31, 1993, the Del Mundo Group agreed to cede all their rights and interests in E.A. Northam in favor of the Santillana Group for a consideration of 4,200,000.00. However, it was agreed therein that: (a) the said pharmaceutical products shall remain jointly owned by Eliezer/Drugmakers and Alberto; (b) the products shall be exclusively manufactured by Drugmakers as long as Eliezer maintains majority ownership and control of the said company; and (c) the products will be sold, conveyed, and transferred to S.V. More, provided that Alberto remains its chief executive officer with majority ownership and control thereof.
“On even date, E.A. Northam entered into a Deed of Sale/Assignment with S.V. More, whereby E.A. Northam agreed to convey, transfer, and assign all its rights over 28 pharmaceutical products in favor of S.V. More which shall then have the right to have them sold, distributed, and marketed in the latter’s name, subject to the condition that such pharmaceutical products will be exclusively manufactured by Drugmakers based on their existing Contract Manufacturing Agreement (CMA) set to expire in October 1993.
“In September 1993, or a month prior to the expiration of the CMA, Drugmakers proposed a new manufacturing agreement which S.V. More found unacceptable. In a letter dated October 20, 1993, S.V. More, for the purpose of renewing its License to Operate with the Bureau of Food and Drug (BFAD), requested a copy of the existing CMA from Drugmakers, but to no avail.16 Hence, on October 23, 1993, S.V. More entered into a Contract to Manufacture Pharmaceutical Products (CMPP) with Hizon Laboratories, Inc. (Hizon Laboratories), and, thereafter, caused the latter to manufacture some of the pharmaceutical products covered by the Deed of Sale/Assignment.19 Meanwhile, the BFAD issued the corresponding Certificates of Product Registration (CPR) therefor, with S.V. More as distributor, and Hizon Laboratories as manufacturer. On February 23, 1995, and after their protest on the new registration went unheeded, Drugmakers and Eliezer (respondents) filed a Complaint for Breach of Contract, Damages, and Injunction with Prayer for the Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order against S.V. More and Alberto (petitioners), and Hizon Laboratories, and its President, Rafael H. Hizon, Jr. (Rafael)…”
HELD: Defendants were held liable. “The existence of contractual breach in this case revolves around the exclusive status of Drugmakers as the manufacturer of the subject pharmaceutical products which was stipulated and, hence, recognized under the following contracts: (a) the CMA dated October 30, 1992 between Drugmakers, as manufacturer, and S.V. More, as the holder of the CPR covering the pharmaceutical products; (b) the Agreement dated May 31, 1993 covering the change in ownership in E.A. Northam, or the distributor of the pharmaceutical products manufactured by Drugmakers and covered by S.V. More’s CPR; and (c) the Deed of Sale/Assignment of even date between E.A. Northam and S.V. More, whereby the former’s distributorship rights were transferred to the latter.
“In particular, the CMA states that Drugmakers, being the exclusive manufacturer of the subject pharmaceutical products, had to first give its written consent before S.V. More could contract the services of another manufacturer… In the May 31, 1993 Agreement, the new ownership of E.A. Northam, or the initial distributor of the same pharmaceutical products, equally recognized Drugmakers’s status as exclusive manufacturer… The same was echoed in the Deed of Sale/Assignment, wherein S.V. More, being the transferee of E.A. Northam’s distributorship rights.
“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.”
Nonetheless, the appellate court’s award of P6,000,000,000.00 based on supposed loss of profits was erroneous. “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 Form for the period November 1993 to February 1995. 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, 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.” Further, “it is also evident that only six (6) of the 28 pharmaceutical products were caused by petitioners to be manufactured by Hizon Laboratories.”
As required by law, “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.”
“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 100,000.00 in the form of temperate damages. 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.”