G.R. No. 200408 & 200416, November 12, 2014
S.V. MORE PHARMA CORPORATION and ALBERTO A. SANTILLANA, Petitioners, vs. DRUGMAKERS LABORATORIES, INC. and ELIEZER DEL MUNDO, Respondents.

FACTS

Eliezer Del Mundo, Evangeline C. Del Mundo, and Atty. Quirico T. Carag (Del Mundo Group) owned 50% of E.A. Northam Pharma Corporation, which exclusively distributed 28 pharmaceutical products manufactured by Drugmakers Laboratories, Inc., a company controlled by Eliezer. The other 50% was owned by Alberto Santillana and Nilo S. Valente (Santillana Group). On May 31, 1993, the Del Mundo Group agreed to cede their rights in E.A. Northam to the Santillana Group for ₱4,200,000.00. A key condition was that the pharmaceutical products would remain jointly owned and would continue to be exclusively manufactured by Drugmakers as long as Eliezer maintained majority ownership and control of Drugmakers. On the same date, E.A. Northam entered into a Deed of Sale/Assignment with S.V. More Pharma Corporation (where Alberto was chief executive officer), transferring all rights over the 28 products to S.V. More, subject to the condition that the products would be manufactured by Drugmakers pursuant to an existing Contract Manufacturing Agreement (CMA) set to expire in October 1993. When Drugmakers proposed a new manufacturing agreement in September 1993, S.V. More found it unacceptable. After failing to obtain a copy of the existing CMA from Drugmakers for license renewal purposes, S.V. More entered into a Contract to Manufacture Pharmaceutical Products with Hizon Laboratories, Inc. on October 23, 1993, and caused Hizon to manufacture some of the products. Drugmakers and Eliezer filed a complaint for breach of contract and damages against S.V. More, Alberto, Hizon Laboratories, and its President, Rafael H. Hizon, Jr.

ISSUE

Whether the Court of Appeals correctly affirmed petitioners’ (S.V. More and Alberto Santillana) liability for breach of contract.

RULING

Yes, the Court of Appeals correctly affirmed petitioners’ liability for breach of contract, but the Supreme Court modified the awarded damages. The Court found that petitioners clearly breached their contractual obligations. The Contract Manufacturing Agreement (CMA) required S.V. More to secure Drugmakers’ written consent before contracting another manufacturer. The May 31, 1993 Agreement and the Deed of Sale/Assignment explicitly stipulated that the products would continue to be exclusively manufactured by Drugmakers. By entering into a manufacturing contract with Hizon Laboratories without Drugmakers’ consent, S.V. More violated these clear stipulations. Petitioners’ defenses—including claims of surreptitious insertions in the contracts and impossibility of performance—were unsubstantiated. The Court affirmed the award of actual damages representing unrealized profits, attorney’s fees, and costs of suit in favor of Drugmakers. However, the Court deleted the award of moral and exemplary damages because Drugmakers, as a juridical entity, cannot experience emotional suffering and there was no showing of wanton, fraudulent, or reckless conduct to justify exemplary damages. The Court also affirmed the appellate court’s decision absolving Hizon Laboratories and Rafael Hizon, Jr. from liability, as they were not parties to the contracts and their actions were a direct consequence of petitioners’ breach.