UNIVERSAL FOOD CORPORATION, petitioner, vs. COURT OF APPEALS, MAGDALO V.

FRANCISCO, SR., and VICTORIANO N. FRANCISCO, respondents.

FACTS:

- Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce and
Francisco registered his trademark in his name as owner and inventor with the Bureau of
Patents
- Due to lack of sufficient capital to finance the expansion of the business, Francisco secured the
financial assistance of Tirso T. Reyes, who formed with Universal Food Corporation (UFC),
which eventually led to the execution of the "Bill of Assignment" (Exhibit A or 1).
- Pursuant with the terms and conditions, Francisco was appointed Chief Chemist with a salary
of P300.00 a month.
- Since the start of the operation, Magdalo, when preparing the secret materials inside the
laboratory, never allowed anyone, not even his own son, or the President and General
Manager Tirso Reyes, to enter the laboratory in order to keep the formula secret to himself.
- However, Magdalo expressed a willingness to give the formula to UFC provided that the same
should be placed or kept inside a safe to be opened only when he is already incapacitated to
perform his duties as Chief Chemist, but UFC never acquired a safe for that purpose.
- Tirso Reyes wrote Magdalo requesting him to permit one or two members of his family to
observe the preparation of the 'Mafran Sauce', but said request was denied by Magdalo.
- In spite of such denial, Tirso Reyes did not compel or force Magdalo to accede to said request.
- However, due to the alleged scarcity and high prices of raw materials, a Memorandum duly
approved by Tirso Reyes that only Supervisor Ricardo Francisco should be retained in the
factory and that the salary of Magdalo should be stopped for the time being until the
corporation should resume its operation.
- Several memoranda were issued instructing to recall all daily employees who are connected in
the production of Mafran Sauce and also some additional daily employees for the production of
Porky Pops
- Another memorandum was issued instructing Ricardo Francisco, as Chief Chemist, and Porfirio
Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops.
- Due to the successive memoranda, without Magdalo being recalled back to work, he filed an
action for rescission of a contract entitled "Bill of Assignment against UFC.
- Magdalo prayed the court to adjudge UFC as without any right to the use of the Mafran
trademark and formula, and order the latter to restore to them the said right of user; to order
UFC to him his unpaid salary from December 1, 1960, as well as damages in the sum of
P40,000, and to pay the costs of suit.
- A month after, UFC requested Magdalo to report for duty, but the latter declined the request
because the present action was already filed in court

ISSUE:

- WON the action for rescission is proper. - YES

RULING:

- 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. The injured party may choose between
fulfillment and rescission of the obligation, with payment of damages in either case.
- In this case, there is no controversy that the provisions of the Bill of Assignment are reciprocal
in nature. UFC violated the Bill of Assignment by terminating the services of Magdalo
Francisco, Sr. without lawful and justifiable cause.
- 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.
- UFC 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 Magdalo 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 Magdalo had no alternative but to file the
present action for rescission and damages.
- It is to be emphasized that Magdalo would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of UFC 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 UFC 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 Magdalo as Second Vice-President and chief
chemist on a permanent status; the obligation of Magdalo 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.
- Article 1385 of the new Civil Code provides that rescission creates the obligation to return the
things which were the object of the contract. But that as it may, it is a logical inference from
the appellate court's decision that what was meant to be returned to Magdalo is not the
formula itself, but only its use and the right to such use. Thus, Magdalo in his complaint for
rescission specifically and particularly pray, among others, that UFC be adjudged as "without
any right to use said trademark and formula."
- WHEREFORE the appealed decision is reversed. The Bill of Assignment is hereby rescinded,
and UFC is ordered to return and restore to Magdalo V. Francisco, Sr. the right to the use of
his Mafran sauce trademark and formula, subject-matter of the Bill of Assignment, and to this
end, UFC and all its assigns and successors are hereby permanently enjoined, effective
immediately, from using in any manner the said Mafran sauce trademark and formula.