82. UNIVERSAL FOOD CORPORATION (UFC) v.

COURT OF APPEALS
33 SCRA 1 | Castro, J. | 13 May 1970
Article 1191: Resolution or Rescission of Obligations

DOCTRINE: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. x x x The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of damages in either case. He may also seek rescission
even after he has chosen fulfillment, if the latter should become impossible.

FACTS:
This is a petition for certiorari by the UFC against the CA decision of February 13, 1968 declaring the Bill of
Assignment rescinded, ordering UFC to return to Magdalo Francisco his Mafran sauce trademark and to pay
his monthly salary of P300.00 from December 1, 1960 until the return to him of said trademark and formula.

In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the manufacture of a food seasoning
derived from banana fruits popularly known as Mafran sauce. It was used commercially since 1942, and in
the same year, plaintiff registered his trademark in his name as owner and inventor with the Bureau of Patents.
However, in 1960, due to lack of sufficient capital to finance the expansion of the business, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a series of negotiations, formed with others
defendant Universal Food Corporation (UFC) eventually leading to the execution on May 11, 1960 of the
aforequoted “Bill of Assignment”.

On May 31, 1960, Francisco entered into a contract with UFC stipulating among others that he be the Chief
Chemist and Second Vice President of UFC and shall have absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the chemicals used in the
preparation of said Mafran sauce and that said positions are permanent in nature.

In line with the terms and conditions of the Bill of Assignment, Francisco was appointed Chief Chemist. He
likewise kept the formula of the sauce to himself. Thereafter, however, due to the alleged scarcity and high
prices of raw materials, on November 28, 1960, UFC’s Secretary Treasurer Ciriaco L. de Guzman issued a
memorandum duly approved by the President and General Manager Tirso T. Reyes that only Supervisor
Ricardo Francisco should be retained in the factory and that the salary of plaintiff should be withheld for the
time being until the corporation should resume its operation. On December 3, 1960, President and General
Manager Reyes issued a memorandum to Victoriano Francisco ordering him to report to the factory and
produce the sauce at the rate of not less than one hundred a day so as to cope with the orders of the
corporation’s various distributors and dealers, and with instructions to take only the necessary daily
employees without employing permanent employees. Again, on December 6, 1961, another memorandum
was issued by the same President and General Manager instructing the Assistant Chief Chemist Ricardo
Francisco to recall all daily employees who are connected in the production of Mafran sauce and also some
additional employees for the production of Porky Pops. On December 29, 1960, another memorandum was
issued by the President and General Manager instructing Chief Chemist Fransisco and Acting
Superintendent Zarraga to produce Mafran sauce and Porky Pops in full swing starting January 2, 1961 with
further instructions to hire daily laborers in order to cope with the full blast operation. Plaintiff Francisco
received his salary as Chief Chemist in the amount of P300.00 a month only until his services were
terminated on November 30, 1960. On January 9 and 16, 1961, UFC authorized Porifio Zarraga and Paula
de Bacula to look for a buyer of the corporation including its trademarks, formula, and assets, at a price of
not less than P300,000.00. Due to these successive memoranda, without plaintiff being recalled back to
work, he filed the present action for rescission of the Bill of Assignment on February 14, 1961. Then in a
letter dated March 20, 1961, UFC requested said plaintiff to report for duty, but the latter declined because
the present action was already filed in court.

ISSUES:
1. Was the Bill of Assignment really one that involves transfer of the formula for Mafran sauce itself?
2. Is rescission of the Bill of Assignment Proper?
HELD:
1. NO. Certain provisions of the bill would lead one to believe that the formula itself was transferred. To
quote, “the respondent patentee "assign, transfer and convey all its property rights and interest over
said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the
last paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable
(and) in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights
and interest over said Mafran trademark and Mafran formula." However, a perceptive analysis of the
entire instrument and the language employed therein would lead one to the conclusion that what was
actually ceded and transferred was only the use of the Mafran sauce formula. This was the precise
intention of the parties. The SC had the following reasons to back up the above conclusion. First,
royalty was paid by UFC to Magdalo Francisco. Second, the formula of said Mafran sauce was never
disclosed to anybody else. Third, the Bill acknowledged the fact that upon dissolution of said
corporation, the patentee rights and interests of said trademark shall automatically revert back to
Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the transfer of the use of the Mafran
sauce and not the formula itself which was admitted by UFC in its answer. Fifth, the facts of the case
undeniably show that what was transferred was only the use. Finally, the Civil Code allows only “the
least transmission of right, hence, what better way is there to show the least transmission of right of
the transfer of the use of the transfer of the formula itself.”

2. YES. The general rule is that rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental breach as would defeat the very object of the parties
in making the agreement. The question of whether a breach of a contract is substantial depends
upon the attendant circumstances. The petitioner contends that rescission of the Bill of Assignment
should be denied, because under Article 1383, rescission is a subsidiary remedy which cannot be
instituted except when the party suffering damage has no other legal means to obtain reparation for
the same. However, in this case, the dismissal of the respondent patentee Magdalo V. Francisco, Sr.
as the permanent Chief Chemist of the corporation is a fundamental and substantial breach of the
Bill of Assignment. He was dismissed without any fault or negligence on his part. Thus, apart from
the legal principle that the option — to demand performance or ask for rescission of a contract —
belongs to the injured party, the fact remains that the respondents-appellees had no alternative but
to file the present action for rescission and damages. It is to be emphasized that the respondent
patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic
commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief
Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he
would have "absolute control and supervision over the laboratory assistants and personnel and in the
purchase and safeguarding of said products;" and that only by all these measures could the
respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy
its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The
salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of
the formula; the appointment of the respondent patentee as Second Vice-President and Chief
Chemist on a permanent status; the obligation of the said respondent patentee to continue research
on the patent to improve the quality of the products of the corporation; the need of absolute control
and supervision over the laboratory assistants and personnel and in the purchase and safekeeping
of the chemicals and other mixtures used in the preparation of said product — all these provisions of
the Bill of Assignment are so interdependent that violation of one would result in virtual nullification
of the rest.

WHEREFORE, the petition is DISMISSED.