G.R. No. 203697 , March 20, 2019
Interphil Laboratories Inc., Petitioner, vs. OEP Philippines Inc., Respondent.

FACTS

Petitioner Interphil Laboratories Inc. and respondent OEP Philippines Inc. entered into a Manufacturing Agreement whereby Interphil undertook to process and package Diltelan capsules for OEP. The Agreement stipulated that Interphil must prepare and pack the products strictly in accordance with OEP’s specifications and that Interphil would maintain the highest standards of workmanship. A joint letter to the Bureau of Food and Drugs stated the parties would be jointly responsible for product quality, with liability falling on Interphil for defects in the manufacturing or packaging process, and on OEP for defects arising from formulae or raw materials.
In April 2000, Interphil processed and packaged Lot No. 001369. Subsequently, OEP’s client in Taiwan reported a critical packaging defect: 90-mg capsules were wrapped in foils labeled for 120-mg capsules and then placed in boxes for 90-mg capsules. OEP conducted a recall and destruction of the lot, incurring significant expenses. OEP demanded reimbursement from Interphil, which refused, leading OEP to file a complaint for damages.

ISSUE

Whether Interphil is liable for damages arising from the defective packaging of the pharmaceutical products.

RULING

Yes, Interphil is liable. The Supreme Court affirmed the lower courts’ decisions, finding Interphil negligent in its contractual obligations. The legal logic centers on the application of the doctrine of res ipsa loquitur and the specific terms of the Agreement. The defect—mislabeling where wrong foils were used—occurred entirely within Interphil’s exclusive control during the packaging process, a phase for which it had contractual responsibility to execute with high standards of care. The nature of the error itself speaks of negligence (res ipsa loquitur), as such a mix-up in a controlled manufacturing environment would not ordinarily happen in the absence of fault.
The Court rejected Interphil’s defenses. First, its claim that OEP breached the Agreement by unilaterally destroying the products without joint inspection was untenable. Given the critical health risks posed by mislabeled prescription drugs, OEP’s immediate recall and destruction were a reasonable and necessary measure to protect public safety, constituting a legitimate exercise of its rights. Second, the liability clause in the Agreement and the joint letter to the BFAD clearly allocated responsibility for packaging defects to Interphil. Since the cause was definitively a packaging error and not faulty raw materials or formulae from OEP, liability squarely fell upon Interphil. The Court modified the award by imposing six percent per annum interest on the damages from the finality of judgment until full payment.