G.R. No. L-29155 May 13, 1970
UNIVERSAL FOOD CORPORATION, petitioner, vs. THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO, respondents.

FACTS

Magdalo V. Francisco, Sr. was the inventor and owner of the Mafran sauce formula and trademark, registered since 1942. In 1960, to secure capital for business expansion, he entered into a “Bill of Assignment” with the Universal Food Corporation, assigning the trademark and formula to the corporation in exchange for a 2% royalty of net annual profits and permanent appointments for himself as Chief Chemist and for Victoriano V. Francisco as auditor/superintendent. Magdalo Francisco, Sr. kept the formula secret, never allowing anyone in the laboratory. The corporation, through its President Tirso T. Reyes, requested he allow family members to observe the preparation, which he denied. On November 28, 1960, citing scarcity and high prices of raw materials, the corporation issued a memorandum stopping Magdalo Francisco, Sr.’s salary and retaining only a supervisor. Subsequently, memoranda were issued ordering production of Mafran sauce without recalling him. The corporation also authorized the seeking of a buyer for its assets, including the trademark and formula. Magdalo Francisco, Sr. received his last salary on November 30, 1960, and filed an action for rescission of the Bill of Assignment on February 14, 1961. The corporation later requested he report for duty in March 1961, but he declined as the case was already in court. The Court of First Instance dismissed the complaint, but the Court of Appeals reversed, ordering rescission, return of the trademark and formula, payment of back salaries, and attorney’s fees.

ISSUE

Whether the respondents are entitled to rescind the “Bill of Assignment” contract.

RULING

Yes. The Supreme Court affirmed the decision of the Court of Appeals. The Bill of Assignment created reciprocal obligations: the corporation’s obligation to employ Magdalo Francisco, Sr. permanently as Chief Chemist and pay his salary, and his obligation to eventually disclose the formula. The corporation committed a substantial breach by illegally dismissing him from his permanent position, stopping his salary, and attempting to sell the assigned assets. This breach entitled Magdalo Francisco, Sr. to rescind the contract under Article 1191 of the Civil Code. The Court rejected the corporation’s arguments that rescission was improper because he had not yet disclosed the formula, holding that his obligation to disclose was not an immediate prestation but was contingent on the corporation providing a safe for its keeping, which it never did. His failure to disclose did not constitute prior breach barring rescission. The corporation’s breach was the proximate cause of the rescission. The Court also clarified that the rescission under Article 1191, for breach of contract, is distinct and not subject to the condition under Article 1383 that no other legal means for reparation exists, which applies only to rescission for economic lesion.