52

UNIVERSAL FOOD CORPORATION v. THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO V.
FRANCISCO
[G.R. No. L-29155. May 13, 1970.]
SUPREME COURT EN BANC
CASTRO, J

NATURE OF ACTION:
Petition for certiorari assailing the decision of the Court of Appeals

FACTS:
As far back as 1938, Magdalo Francisco, Sr. discovered or invented a formula for the manufacture of a food
seasoning known as MAFRAN sauce. Due to lack of sufficient capital to finance the expansion of the business, in
1960, he secured financial assistance of Universal Food Corporation eventually leading to the execution on May
11, 1960 a "Bill of Assignment". Magdalo Francisco, Sr. was appointed Chief Chemist and his son, Victoriano
Francisco, was appointed auditor and superintendent. Since the start of the operation of the corporation, Magdalo
Francisco, Sr.never allowed anyone to enter the laboratory in order to keep the formula secret to himself.
Thereafter, however, due to the alleged scarcity and high prices of raw materials, Secretary-Treasurer Ciriaco de
Guzman of Universal Food issued a Memorandum, that only Supervisor Ricardo Francisco should be retained in
the factory and that the salary of Magdalo Francisco, Sr., should be stopped for the time being until the
corporation should resume its operation. After a few days, the president issued another memorandum to allow
the supervisor, now assistant chief chemist, to recall some employees to produce the sauce and Porky Pops.
Within a month, the corporation through its president authorized Zarraga and Bacula to look for a buyer of the
corporation including its formula without Francisco being recalled back to work. Magdalo Francisco then filed an
action for rescission of the Bill of Assignment in the CFI against Universal Food, rejecting the subsequent offer of
the corporation to recall him to work after the action was filed. The CFI dismissed the case but the CA reversed
the decision

ISSUE:
WON Magdalo Francisco is entitled to the rescission of the Bill of Assignment – YES.

RULING:
The dismissal of the respondent patentee Magdalo Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill of Assignment. 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. In accordance with the provisions of the Bill of Assignment, what was ceded and transferred by Francisco
was only the use of the Mafran sauce formula. The word royalty was used in the contract which means
compensation paid by the licensee to the licensor for the use of the licensor‘s invention. Moreover, it is stipulated
that in case of the dissolution of the corporation, the property rights over the trademark and formula shall revert
back to Francisco. 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.
53
MAGDALENA ESTATE, INC. v. LOUIS J. MYRICK
[G.R. No. 47774. March 14, 1941.]
SUPREME COURT EN BANC
LAUREL, J.

NATURE OF ACTION:
A petition for a writ of certiorari on the decision of the Court of Appeals

FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision, San
Juan, Rizal. Their contract of sale provides that the Price of P7,953 shall be payable in 120 equal monthly
installments of P96.39 each on the second day of every month beginning the date of execution of the agreement.
In pursuance of said agreement, the vendee made several payments amounting to P2,596.08, the last being due
and unpaid was that of May 2, 1930. By reason of this, the vendor, through its president, notified the vendee that,
in view of his inability to comply with the terms of their contract, said agreement had been cancelled, relieving
him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor of the
vendor. To this communication, the vendee did not reply, and it appears likewise that the vendor thereafter did
not require him to make any further disbursements on account of the purchase price.

ISSUE:
WON forfeiture of the payments was valid – NO

RULING:
The contract of sale contains no provision authorizing the vendor, in the event of failure of the vendee to continue
in the payment of the stipulated monthly installments, to retain the amounts paid to him on account of the
purchase price. The fact that the contracting parties herein did not provide for resolution is now of no moment,
for the reason that the obligations arising from the contract of sale being reciprocal, such obligations are governed
by article 1124 of the Civil Code which declares that the power to resolve, in the event that one of the obligors
should not perform his part, is implied. Under article 1124 of the Civil Code, however, he may choose between
demanding the fulfillment of the contract or its resolution. These remedies are alternative and not cumulative,
and the petitioner in this case, having to cancel the contract, cannot avail himself of the other remedy of exacting
performance.
54
UNIVERSITY OF THE PHILIPPINES vs. WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST
INSTANCE IN QUEZON CITY, ET AL
[G.R. No. L-28602. September 29, 1970.]
SUPREME COURT SECOND DIVISION
REYES, J.B.L., J

NATURE OF ACTION:
A petition for certiorari and prohibition

FACTS:
UP and ALUMCO entered into a logging agreement under which ALUMCO was granted exclusive authority from
the date of agreement (Nov. 2, 1960) to Dec. 31, 1965 (extendible by 5 years by mutual agreement), to cut, collect
and remove timber from the Land Grant (situated at the Lubayat areas in Laguna and Quezon), in consideration
of payment to UP of royalties and forest fees, etc. As of Dec. 8 1964, ALUMCO incurred an unpaid account of
P219,362.94 which it had failed to pay despite repeated demands. After UP sent a notice of rescission or
termination of the logging agreement, ALUMCO executed an instrument entitled “Acknowledgement of Debt and
Proposed Manner of Payments” dated Dec. 9, 1964 which was approved by the UP president. The instrument
stipulated the following: “5. In the event that the DEBTOR fails to comply with any of its promises or undertakings
in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power
to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial
suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and
for liquidated damages;” After ALUMCO again incurred an additional unpaid account amounting to P61 133.74,
UP informed ALUMCO on Jul 19, 1965 that UP considered the logging agreement as rescinded and of no further
legal effect. UP filed a complaint for the collection of money in accordance to the stipulations in the instrument.
UP also began looking for another concessionaire to take over the logging operation by advertising an invitation
to bid.

ISSUE:
W/N U.P. can treat its contract with ALUMCO rescinded, and disregard the same, before any judicial
pronouncement to that effect. – YES

RULING:
UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments"
that, upon default by the debtor ALUMCO, UP has "the right and the power to consider, the Logging Agreement
dated 2 December 1960 as rescinded without the necessity of any judicial suit." There is no conflict between the
present ruling and the previous jurisprudence of the Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation, since in every case where the extrajudicial resolution is
contested only the final award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. Even without express provision conferring the power of cancellation upon one
contracting party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code
(of which Article 1191 of the Civil; Code is practically a reproduction), has repeatedly held that, a resolution of
reciprocal contracts may be made extrajudicially unless successfully impugned in court.
55
JOSE ZULUETA vs. HON. HERMINIO MARIANO, in his capacity as Presiding Judge of Branch X of the Court of First
Instance of Rizal; and LAMBERTO AVELLANA
[G.R. No. L-29360. January 30, 1982.]
SUPREME COURT FIRST DIVISION
MELENCIO-HERRERA, J

NATURE OF ACTION:
An action for Mandamus and Prohibition

FACTS:
Petitioner Zulueta, owner of a house and lot, entered into a “Contract to Sell” for the said property with private
respondent, a movie director. The said property cost P75,000 payable in 20 years with respondent buyer assuming
to pay a down payment of P5,000 and a monthly installment of P630 payable in advance before the 5th day of the
corresponding month, starting with December, 1964. One of their stipulations was that upon failure of the buyer
to fulfill any of the conditions being stipulated, the buyer automatically and irrevocably authorizes owner to
recover extra-judicially, physical possession of the land, building and other improvements, which were the subject
of the said contract, and to take possession also extra-judicially whatever personal properties may be found within
the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations buyer
may have with owner. Demand was also waived. On the allegation that private respondent failed to comply with
the monthly amortizations stipulated in the contract, despite demands to pay and to vacate the premises, and
that thereby the contract was converted into one of lease, petitioner commenced an Ejectment suit against
respondent before the Municipal Court of Pasig, praying that judgment be rendered ordering respondent to 1)
vacate the premises; 2) pay petitioner the sum of P11, 751.30 representing respondent’s balance owing as of May,
1966; 3) pay petitioner the sum of P630 every month after May, 1966, and costs. Private respondent contended
that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or
rescission of the contract.

ISSUE:
W/N the action before the Municipal Court essentially one for rescission of a contract – YES

RULING:
The basic issue is not possession but one of rescission or annulment of a contract. which is beyond the jurisdiction
of the Municipal Court to hear and determine. The Municipal Court of Pasig was bereft of jurisdiction to take
cognizance of the case filed before it. In his Complaint, petitioner had alleged violation by respondent Avellana of
the stipulations of their agreement to sell and thus unilaterally considered the contract rescinded. Respondent
Avellana denied any breach on his part and argued that the principal issue was one of interpretation and/or
rescission of the contract as well as of set-off. Under those circumstances, proof of violation is a condition
precedent to resolution or rescission. It is only when the violation has been established that the contract can be
declared resolved or rescinded. Upon such rescission, in turn, hinges a pronouncement that possession of the
realty has become unlawful. True, the contract between the parties provided for extrajudicial rescission. This has
legal effect, however, where the other party does not oppose it. Where it is objected to, a judicial determination
of the issue is still necessary. There was no other recourse left for respondent Judge, therefore, except to dismiss
the appeal.
56
PALAY, INC. and ALBERT ONSTOTT vs. JACOBO C. CLAVE, Presidential Executive Assistant, NATIONAL HOUSING
AUTHORITY and NAZARIO DUMPIT
[G.R. No. L-56076. September 21, 1983.]
SUPREME COURT SECOND DIVISION
MELENCIO-HERRERA, J

NATURE OF ACTION:
Petition assailing the Resolution issued by Presidential Executive Assistant Jacobo Clave

FACTS:
Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal,. Paragraph 6 of the contract
provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse
of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all
installments paid. Respondent Dumpit paid the down payment and several installments amounting to P13,722.50.
The last payment was made on December 5, 1967 for installments up to September 1967. On May 10, 1973, or
almost 6 years later, private respondent wrote petitioner offering to update all his overdue accounts with interest,
and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with
another letter reiterating the same request. Replying petitioners informed respondent that his Contract to Sell
had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an
altenative prayer for refund. NHA, finding the rescission void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to
refund Nazario Dumpit immediately. On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law, respondent Presidential Executive Assistant, affirmed the Resolution of the NHA.
Petitioners argue that it was justified in cancelling the contract to sell without prior notice or demand in view of
par. 6 of the Contract to Sell.

ISSUE:
WON demand was necessary before the Contract to Sell may be rescinded – YES

RULING:
Resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of
notice of resolution, as held in the U.P. vs. Angeles case. Well-settled is the rule, as held in previous jurisprudence,
that judicial action for the rescission of a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions. However, even in these cases, there was at
least a written notice sent to the defaulter informing him of the rescission. As stressed in UP vs. De Los Angeles
the act of a party in treating a contract as cancelled should be made known to the other. In other words, resolution
of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns
the declaration, it shall be subject to judicial determination. In this case, private respondent has denied that
rescission is justified and has resorted to judicial action. It is now for the Court to determine whether resolution
of the contract by petitioners was warranted.
57
BUENAVENTURA ANGELES, ET AL. vs. URSULA TORRES CALASANZ, ET AL.
[G.R. No. L-42283. March 18, 1985.]
SUPREME COURT EN BANC
GUTIERREZ, JR., J

NATURE OF ACTION:
Action to compel execution of deed of sale

FACTS:
Ursula and Tomas Calasanz and plaintiffs Buenaventura Angeles and Teofila Juani entered into a contract to sell a
piece of land in Cainta, Rizal for the amount of P3,920.The plaintiffs made a downpayment of P392.00 upon the
execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid
which they paid monthly until July 1966, when their aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted and received delayed installment payments. The
Calasanzes then cancelled the contract because the plaintiffs failed to meet subsequent payments. Plaintiffs seek
to compel the defendants to execute in their favor the final deed of sale alleging that after computing all
subsequent payments, they have already paid the total amount of P4,533.38. Defendants alleged that plaintiffs
violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay the monthly
installments, constraining the defendants-appellants to cancel the said contract.

ISSUE:
WON the contract to sell has been automatically and validly cancelled by the defendants – NO

RULING:
Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of
the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the
parties from entering into an agreement that violation of the terms of the contract would cause its cancellation
even without court intervention. Well settled is, however, the rule that a judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of
its terms and conditions. However, the right to rescind the contract for non-performance of one of its stipulations,
therefore, is not absolute. 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. Here, the breach of the contract adverted to by the defendants is so slight and casual
when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid
the monthly installments for a period of almost nine (9) years. To sanction the rescission made by the defendants-
appellants will work injustice to the plaintiffs. It would unjustly enrich the defendants.
58
SOLOMON BOYSAW and ALFREDO M. YULO, JR. v. INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and
MANUEL NIETO, JR.
[G.R. No. L-22590. March 20, 1987.]
SUPREME COURT SECOND DIVISION
FERNAN, J

NATURE OF ACTION:
An appeal from the decision of the Court of First Instance

FACTS:
Solomon Boysaw, signed with Interphil Promotions, Inc., a contract to engage Gabriel “Flash” Elorde in a boxing
contest for the junior lightweight championship of the world. Thereafter, Interphil signed Gabriel “Flash” Elorde
to a similar agreement—that is, to engage Boysaw in a title fight. The managerial rights over Boysaw was assigned
and eventually reassigned to Alfredo Yulo, Jr. without the consent of Interphil in violation of their contract. When
informed of the change, Interphil referred the matter to the Games and Amusement Board culminating to a
decision by the board to approve a new date for the match. Yulo protested against the new date even when
another proposed date was within the 30-day allowable postponements. Boysaw and Yulo filed for breach of
contract when the fight contemplated in the original boxing contract did not materialize.

ISSUE:
Whether or not there was a violation of the fight contract – YES

RULING:
On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the
contract was violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought
Louis Avila on June 19, 1961 in Las Vegas Nevada. While the contract imposed no penalty for such violation, this
does not grant any of the parties the unbridled liberty to breach it with impunity. Our law on contracts recognizes
the principle that actionable injury inheres in every contractual breach. Thus, Art. 1170 and 1191 of the Civil Code.
The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the
undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the
performance of the contract by the defendant, or recover damages by reason of his own breach " Under the law
when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the
aggrieved creditor is not bound to deal with the substitute. From the evidence, it is clear that the appellees,
instead of availing themselves of the options given to them by law of rescission or refusal to recognize the
substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a
recent bout. That the appellees had the justification to renegotiate the original contract, particularly the fight date
is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone the fight
date could neither be unlawful nor unreasonable.