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Universal Food Corporation vs Court of Appeals, Magdalo V.

[G.R. No. L-29155. May 13, 1970]

In 1938, plaintiff Magdalo V. Francisco, Sr. invented a formula for a food seasoning (sauce) derived from
banana fruits popularly known as MAFRAN sauce; in 1942 he registered the sauce under his name at the
Bureau of Patents. In 1960, plaintiff negotiated with private defendant Tirso T. Reyes, who with other
defendants formed Universal Food Corporation eventually leading to the execution of a "Bill of Assignment",
wherein Francisco was assigned as the new company's Chief Chemist.

Petitioner UFC terminated the employment of Francisco and most of their workers in November 1960, citing
the alleged scarcity and high prices of raw materials. However in December 1960, President and General
Manager Tirso T. Reyes, issued a memorandum to Victoriano Francisco, ordering him to report to the factory
and produce "Mafran Sauce" at the rate of not less than 100 cases 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.

Respondents Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First Instance of
Manila, against, the Universal Food Corporation, an action for rescission of their contract under the "Bill of
Assignment." The respondents allege that the petitioner was without any right to use the Mafran trademark
and formula, and requested the court to order the latter to restore to them the said right of user; to order the
defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in
the sum of P40,000, and to pay the costs of suit.

The CFI dismissed the complaint, which was in turn reversed by the Court of Appeals, which declared that
the Bill of Assignments was rescinded. Hence current petition for review.

Issue: Is respondent entitled to rescind his contract?

Held: Yes. CA ruling affirmed.

A perceptive analysis of the entire instrument and the language employed in the contract 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.

Furthermore, based on the facts, the petitioner, acting through its corporate officers, schemed and
maneuvered to ease out, separate and dismiss the said respondent from the service as permanent chief
chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month
after the institution of the action for rescission, the petitioner corporation, thru its president and general
manager, requested the respondent patentee to report for duty, is of no consequence. As the Court of
Appeals correctly observed, such request was a "recall to placate said plaintiff."

ART. 1191. 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 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.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 of the Mortgage Law.
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same.

ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
At the moment, we shall concern ourselves with the first two paragraphs of article 1191. 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.

There is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The
petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating
the services of the respondent patentee Magdalo V. 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.

In this case the dismissal of the respondent 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.

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.